SAO PAULO Oct 24 (Reuters) - Ethanol exports "will be challenging" for Brazil over the next few years as international demand has been smaller than anticipated, consultant Jonathan Kingsman said on Wednesday.
But rising grain prices are discouraging biofuels production in the European Union, and this region will likely be an important market for Brazilian ethanol next year.
"(International) demand is disappointing for ethanol due to logistic problems, resistance, political issues," Kingsman told journalists in Sao Paulo.
The consultant puts the world surplus of fuel ethanol at 2.5 billion liters in 2007, compared with a little deficit last year. Production capacity is underutilized in many countries.
"Ethanol exports will be challenging over the next few years," Kingsman said, citing logistical problems and large supplies in the United States which make it unlikely that the country would import any significant amount of Brazilian ethanol next year.
As last year, the United States is expected to be the main market for the Brazilian ethanol in 2007. Direct imports, which pay an import tariff of 54 cents a gallon, are forecast to drop, but tariff free shipments through the Caribbean should rise.
But the EU could surpass the United States as Brazil's top ethanol market in 2008.
"The EU should be the main market for Brazilian ethanol next year, because of rising grain prices," Kingsman said, adding European fuel distributors are already purchasing ethanol forward.
"Feedstock is expensive so (ethanol production) capacity is being under-used. This will allow imports next year," he said.
The amount of EU imports from Brazil would be "a little bit more" than the 1 billion liters projected for 2007. Exports to the United States are expected to be "significantly less" than 1.45 billion liters this year.
Kingsman puts this year's world production at 48 billion liters, and consumption at 45.6 billion liters.
In Sao Paulo to attend the biannual Sugar Dinner, Kingsman said another wave of consolidation is expected for Brazil's sugar and ethanol industry in the coming years.
Giants such as Brazil's Odebrecht, Cosan (CSAN3.SA) and Petrobras (PETR4.SA), as well as U.S. oil companies and Archer Daniels Midland Co (ADM.N) should dominate Brazil's ethanol industry in the coming years.
"What you will see in Brazil over the next four to five years is the end of the family-owned industry," he said.
Kingsman said oil companies are very interested in learning about the Brazilian sector and show interest in entering it as as long as the industry manages to maintain its "green image."