Brazil's plan to boost to 25 percent its required mix of ethanol with gasoline may not spur investments in production capacity, according to Arnaldo Correa, executive director of the Sao Paulo-based research company Archer Consulting.

The higher blend, due to take effect by June, will increase demand for anhydrous ethanol by 1.7 billion liters (449 million gallons) a year, Correa said today in a telephone interview.

Sugar-cane processors are reluctant to build new mills because the government sets the price of gasoline, Correa said. The state-controlled oil producer Petroleo Brasileiro SA (PETR4) hasn’t increased gasoline prices since 2005, and costs of ethanol production have risen by about 7 percent a year since 2007, he said.

Investments in ethanol production have plummeted since the 2008 credit crisis, Correa said. “We are basically stagnating at the same volume of production.”

Brazil’s ethanol blend will be increased in May or June, Allan Kardec, director of the national fuel regulator Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis, said Oct. 23 at an event in Rio de Janeiro. It was cut to 20 percent in October 2011 after cane shortages pushed up prices for the biofuel, Correa said.

Brazilian mills will be ready to meet the higher blend rate, Antonio de Padua Rodrigues, technical director of Sao Paulo-based cane industry association Uniao da Industria de Cana-de-Acucar, told reporters in Brasilia today.

source: bloomberg

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