(Adds sugar market reaction)
By Marcelo Teixeira
SAO PAULO, Sept 30 (Reuters) - Brazilian ethanol producers will benefit in the medium term from this week's decision by state-run oil company Petrobras to raise gasoline prices, which will boost demand for the biofuel and allow mills to increase margins, experts said on Wednesday.
"I see an immediate, positive impact on spot ethanol prices," said INTL FCStone analyst Joao Paulo Botelho.
Petrobras, or Petroleo Brasileiro SA, said on Tuesday night that it was raising gasoline prices by 6 percent and diesel by 4 percent. It was the company's second recent increase.
After years of crisis, thin profit margins for Brazilian sugar cane ethanol mills are recovering.
It remains unclear whether Brazil's mills will be able to meet a significant bump in immediate demand for the biofuel. Two-thirds of the cane harvest has been crushed, and it will be finished in December.
Most mills have not been stocking ethanol but selling it to boost cash flow. Mills also have substantial sugar orders on their books to deliver.
Caio Carvalho, a director at sugar and ethanol consultancy Canaplan, said he did not believe the government was trying to help the ethanol sector or spur investment in biofuel production when it agreed to the price increase.
"This is plainly a policy directed at Petrobras, that will have an indirect positive impact on the sugar sector," he said.
Petrobras has a near-monopoly on wholesale fossil fuels sales in Brazil but has been struggling since it became the center of a corruption scandal.
Petrobras' main competitor in the local gasoline market is the ethanol industry. Producers of the biofuel can offer drivers a cheaper alternative if gasoline prices are high enough.
"Consumers are very sensitive to any price hike, so I believe this will have the effect of increasing demand for ethanol," said Aurelio Amaral, fuel supply head of national oil agency ANP.
The expected increase in ethanol demand already lifted prices of sugar, which in Brazil competes with ethanol for cane. ICE futures rose 4 percent to 12.17 cents a lb.
From 2010 to 2014, the government priced domestic fossil fuels below international levels through Petrobras to curb inflation.
This destroyed profits from ethanol production and toppled scores of mills and support industries.
Earlier this week, two cane mills of India's Shree Renuka filed for creditor protection in Brazilian court.
On Aug. 26, leading turnkey sugar and ethanol crushing plant supplier Dedini filed for a court-supervised debt restructuring. (Additonal reporting by Marta Nogueira, in Rio de Janeiro; Editing by Reese Ewing, David Gregorio and Lisa Von Ahn)