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SAO PAULO, Aug 31 (Reuters) - Brazil's state-owned development bank said on Monday it will offer up to 2 billion reais ($552 million) of loans to help ethanol producers build up stocks of the biofuel and ease price swings between harvest and post-harvest seasons.
The credit line from the bank, known as BNDES, could help the country's sugarcane mills and ethanol distilleries stockpile some 1.4 billion liters, nearly 5 percent of expected 2015-2016 Brazilian ethanol output, for sale between December and April when the harvest is over and stocks begin to run down.
This year's cane crop has seen ethanol prices plunge, adding to woes of an industry that is struggling under mountains of debt and the government's long insistence that state-run Petroleo Brasileiro SA subsidize domestic gasoline in an effort to control inflation.
While prices tend to rebound after the harvest, demand usually plunges as ethanol prices become uncompetitive with gasoline. Ethanol is 5 percent below year-ago levels and 18 percent below the post-harvest peak in February. ETN-HYFUW-BRL
Buying stocks now can bolster weak prices and keep them lower when they are expected to rise, helping build strong and steady demand for the fuel, industry groups say.
"With this program, BNDES expects to contribute to guarantee ethanol supplies along the period between cane crops beginning in December," the bank said in a statement.
Financially strapped mills have been selling ethanol in the market as fast as they produce it, trying to generate cash flow to finance operations.
The situation has pressured ethanol values and boosted local demand since the biofuel's price advantage against gasoline increased.
Sales of hydrous ethanol, which Brazilian consumers can buy retail at gas stations and is used in the country's large fleet of flex-fuel cars, jumped 55 percent in July compared with 2014 to an all-time record of 1.55 billion liters.
Some executives from mills complained in the last days about BNDES's delay to launch the line, since the crop is already heading to its final stages. Last year the financing was launched around June.
This year's line is more expensive than last year's, reflecting the tight financial situation of the BNDES and the Brazilian government in general.
Only 25 percent of the line will be based on the subsidized TJLP long-term reference rate (currently at 6.5 percent per year). The rest is subject to normal market rates.
$1 = 3.624 reais Reporting by Marcelo Teixeira; Edited by Jeb Blount and Leslie Adler