SAO PAULO (Reuters) - An ethanol production increase expected for Brazil, the world’s second largest market for the biofuel, will not be enough to cope with rising demand and the country will continue importing fuel from the United States to cover the shortfall.

According to analysts from S&P Global Platts, demand for ethanol in Brazil will increase around 2.5% per year in coming years, due to a new federal policy to boost use and to the price advantage over gasoline in the local market. That means the country will need 5 billion liters more through 2025.

“Even with new capacity coming from corn-based ethanol plants, that won’t be enough to supply increasing demand,” Beatriz Pupo, senior biofuels analyst for Platts, said on Wednesday.

“So, Brazil will continue to be a net importer of the fuel,” she said during one of several presentations in Sao Paulo as the city hosts this week’s biannual Sugar Dinner.

U.S. exporters are likely to continue to supply Brazil’s Northeast region, since Brazilian mills further south in the main center-south area will not have enough supplies to ship north as demand in states such as Sao Paulo and Minas Gerais continue strong.

Nicolle Monteiro de Castro, Platts’ senior price specialist, projects Brazil’s Northeast will have an ethanol deficit of 1.04 billion liters from now through February 2020.

“Even with the 20% import tax applied to volumes beyond the tariff-free quota, imports will continue to happen. There is no production increase expected in the Northeast,” she said.

Pupo said the United States was on track to produce an ethanol surplus of around 6 billion liters per year, since mandates in the country are stagnant. Northeast Brazil will continue to be a logical market for that volume, due to the proximity to U.S. Gulf ports.

She said Brazil has exported some volumes to California due to the higher environmental credentials of cane ethanol compared to U.S.-produced corn ethanol, which leads to price premiums of up to 80 cents per gallon. But that is basically the only U.S. market Brazilian mills can compete on.