Brazil biodiesel long-term outlook seen bright

RIO DE JANEIRO (Reuters) - Lower oil prices and higher grains costs are making it hard for the young Brazilian biodiesel industry, but the longer term outlook remains bright, a Petrobras official said on Wednesday.

Brazil's state-run energy company Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) (PBR.N: Quote, Profile, Research, Stock Buzz) intends to be a leading player in the biodiesel market and is investing in three plants, which are due to start-up early 2008 with total annual output of 150 million liters.

"It's possible that some biofuels producers are scared but as they see that demand is firm and rising, not only here but in the rest of the world, they will feel safer," Nilo Carvalho Vieira, executive marketing and trading manager, told Reuters.

Speaking at Petrobras' headquarters in Rio de Janeiro during Reuters Global Biofuel Summit, he said producers must adapt to fluctuating commodity prices and take a long-term view.

Economic growth in developing countries, mainly in Asia and Latin America, will increase demand for energy from alternative sources like biofuels, he said.

Some soy processors like Cocamar, one of Brazil's largest agricultural cooperatives, announced recently that they were abandoning plans to invest in biodiesel plants because they would not be economically viable due to rising grains prices.

A 2-percent blend of biodiesel in all conventional diesel fuel will become mandatory in Brazil in 2008, and in 2013 the blend will be raised to 5 percent.

To help fund new factories being built, the government has already held four auctions to buy biodiesel before the blend is mandatory and the market is developed. About 800 million liters

of biodiesel were bought at the auctions.  Continued...