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 Joao Paulo Botelho, sugar and ethanol analyst at INTL FCStone in Campinas (SP), after Petrobras, or Petroleo Brasileiro SA, announced 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 cane ethanol producers are recovering.
It remained unclear whether Brazil's cane mills will be able to immediately meet any significant bump in demand for the biofuel. Two-thirds of the annual cane crop has been crushed and the season finishes in December.
Most mills have not been stocking ethanol but selling it to boost cash flow. Mills also have substantial sugar sales 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 hike.
"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 and is in dire financial straits since prosecutors focused a historic corruption probe on the company.
Petrobras' main competitor on the local gasoline market is the ethanol industry, which can offer drivers a cheaper alternative fuel if gasoline prices are expensive 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, fuels supply superintendent at Brazil's National Agency for Oil, Gas and Biofuels (ANP).
From 2010 to 2014, the government priced domestic fossil fuels below international rates with the help of Petrobras to hold back inflation.
This policy destroyed profits from ethanol production and toppled scores of sugar and ethanol mills and support industry.
Earlier this week, local milling assets of India's Shree Renuka filed for creditor protection in Brazilian court. On Aug. 26, leading supplier of turnkey sugar and ethanol crushing plants in Brazil, Dedini, filed for protection from creditors. Large milling group GVO is in debt negotiations with creditors like many other mills. (Additonal reporting by Marta Nogueira, in Rio de Janeiro; Editing by Reese Ewing and David Gregorio)