Brazil was due to publish a tariff increase of 11.75 percent on imported ethanol on Monday, and the traders in U.S. ethanol, which makes up the bulk of imports to Brazil, were concerned about the move, expected to benefit local mills.
In late May, the Senate passed Bill 668, which raises Brazil's so-called PIS-COFINS taxes on a broad array of imports including ethanol to 11.75 percent. President Dilma Rousseff signed the bill into law late on Friday, a spokesman at the Presidential Palace said on Monday.
It remained unclear whether she included any vetoes to parts of the bill the Senate passed. The federal government's Official Daily Register (DOU) did not include the signed bill in its Monday morning edition but the spokesman said the signed bill would appear in the afternoon edition.
The import tariff increase was due to go into effect immediately once the DOU publishes it.
Foreign ethanol currently arriving in Brazilian ports gets a PIS-COFINS of 9.25 percent but the importer then gets a credit which fully offsets the tariff.
"This credit will end altogether when the government raises the tariff, so it is a full increase of 11.75 percent," said Tarcilo Rodrigues, chief analyst at local brokers and consultants Bio Agencia.
Brazil imported 357 million liters of ethanol from the United States from January through May, up 26 percent from 282 million liters over the first five months of 2014, according to Trade Ministry data.
Traders say U.S. ethanol shipments into Brazil in 2015, which went mostly to the northeast region, were likely deals closed when prices were still attractive in 2014.
"The arbitrage is not attractive in this direction anymore but this tariff increase will totally chill down trade," Arnoldo Correa, head analyst at Archer Consulting, said.
U.S. ethanol traders also expressed concern, calling the tariff hike a "significant barrier" to exports. U.S. inventories of the biofuel are near their highest since 2012 and futures prices could come under pressure.