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Brazil slashes ethanol blend rate to 20pc

30 Aug 2011, 2.11 pm GMT

Sao Paulo, 30 August (Argus) — Brazil is reducing its mandatory blend of anhydrous ethanol in commercial gasoline to 20pc (E20), down from the current 25pc, in response to tight domestic ethanol supplies, the country's energy minister Edison Lobao said.

The E20 blend rate goes into effect on 1 October as mills approach the end of the main cane crushing season. The tightest supply time is the inter-harvest season that spans from December through March.

This year's sugarcane crop has been disappointing due to a lack of investment in replanting and bad weather at pivotal phases of the crop's development over the past year and a half. In early 2011, analysts were expecting a central-south cane crush of up to 560mn t. But this has been steadily reduced to less than 500mn t, with more downward revisions expected as the dwindling crush nears completion this harvest. Such a crop is expected to yield around 19-20bn l (5bn-5.3bn USG) of ethanol – both hydrous and anhydrous – down from the 25bn l produced in the previous season.

Mills have boosted their anhydrous ethanol output to appease the government's concerns over tight supplies and high prices for ethanol in the local market. They have also been importing the fuel additive from the US to supply local demand. Output of cane from the main central-south crop is not expected to improve significantly for several harvests due to the lack of investment in new planting, which has been slowed by uncertainty that has been cast over the sector with increasing government intervention.

Lobao said blend reduction would be indefinite and periodically reviewed by the government, with an eye toward inventory levels.

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