Up to 20% of Brazil Center-South Cane Mills May Be Shut or Sold

As much as a fifth of the sugar- cane mills in Brazil’s center south, the world’s biggest producing region, may close or get sold this year because they are selling ethanol at a loss, according to a member of the country’s lower house.

The government’s plan to raise the blend of ethanol in gasoline to 25 percent from 20 percent in May won’t be enough to make mills profitable and an anticipated tax cut for the renewable fuel will probably reduce prices at the pump, Duarte Nogueira, a deputy who represents Sao Paulo state for the Brazilian Social Democracy Party, said today in a telephone interview.

Rising production costs have made ethanol less competitive at the pump with gasoline, which is sold at prices that are fixed by the state-controlled oil company Petroleo Brasileiro SA (PETR4), known as Petrobras. There are about 300 mills operating in the center-south region, many of which are highly indebted.

Mills “are selling ethanol less than it costs to produce,” he said. “The price of gasoline should be allowed to float with the market like it does in other countries.”

Nogueira was secretary of agriculture and supply in Sao Paulo, the country’s biggest ethanol-producing state, from 2003 to 2006 and is a member of the Parliamentary Front for Farmers, a lobby group.

Brazilian ethanol has been losing market share for the past three years to gasoline, Salim Morsy, an analyst at Bloomberg New Energy Finance’s Sao Paulo office, said in a telephone interview. More than 10 percent of gasoline used in Brazil is imported and sold at a loss by Petrobras.

Ethanol sold at the pump in Brazil averaged 2.06 reais ($1.04) a liter for week ended March 13, according to the website of fuel regulator Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis. Gasoline, which is generally more expensive because of its higher energy content, sold for 2.89 reais a liter.

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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