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SAO PAULO, May 26 (Reuters) - Industry representatives said on Monday they expected Brazil's government to announce on Wednesday an increase in the minimum amount of biodiesel that must be blended into diesel.
The move would increase the biodiesel requirement to 6 percent in July and 7 percent in November from the current 5 percent, decreasing Brazil's diesel fuel imports and giving farmers an incentive to grow more soy used to make the fuel.
Changing the blend requirement has been on the table for years but faced resistance from the Finance Ministry, which has struggled to keep inflation within the central bank's target range before a presidential election scheduled for October.
Opponents feared using more soy to make fuel could raise the price of the commodity and affect Brazil's consumer price index.
"The Finance Ministry had this inflationary concern, but it seems to have been overcome," said Leonardo Zilio, economic adviser to the Brazilian Association of Vegetable Oil Industries. "It is very welcome news," he added, saying recent private studies had shown the impact of biodiesel on inflation to be negligible.
The announcement would also be good news for state-run oil firm Petroleo Brasileiro SA, which has been forced by government policies to import diesel fuel and sell it at a loss. That has contributed to a surging debt load for Petrobras, as the company is known. Brazil uses more diesel than gasoline and has domestic refining constraints in both fuels.
With a 7 percent biodiesel blend requirement, biodiesel consumption in Brazil could rise to 4.2 billion liters a year from the current 3 billion liters. In 2015, Brazil would replace 10 percent of the volume of its diesel demand with domestic biodiesel, according to industry data.
Large agribusiness firms such as Cargill Inc and Bunge Ltd have opened biodiesel plants in Brazil in recent years because of an expected spike in demand.
Brazil pioneered the production of another biofuel, ethanol produced from sugarcane, and the cane industry has petitioned the government to raise the minimum amount of ethanol in gasoline to 27.5 percent from 25 percent this year.
A greater demand for biodiesel would also lead to more soymeal production, possibly increasing the supply of feeds for pork and poultry and decreasing the amount of soybeans sold abroad from Brazil, the world's largest bean exporter.
"The larger blend requirement adds value to production," Zilio said.
When soybeans are crushed, 80 percent of the mass becomes soymeal, used mostly for animal feed, and 20 percent is transformed into oil needed for biodiesel.
If all of the additional biodiesel is produced with soy rather than other sources like beef tallow, 8 million tonnes of soybeans would be required, some 9 percent of the last harvest.
The president's office said an event was scheduled for Wednesday, but did not give details. The Energy Ministry did not immediately respond to a request for comment. (Reporting by Roberto Samora; Writing by Caroline Stauffer; Editing by Peter Cooney)