Ethanol exports seen challenge for Brazil-Kingsman

By Inae Riveras

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.