Licht forecasts mild ethanol surplus

PARIS (Reuters) - Analyst F.O. Licht forecasts a modest global ethanol surplus of around 700 million litres in 2010, managing director Christoph Berg said on Tuesday.

"Total consumption in the big three markets (U.S., Europe, Asia) could increase to 76.4 billion litres, while supply is estimated at around 77.1 billion," Berg said at the November 2-5 World Ethanol 2009 conference.

"This would result in a surplus of around 700 million litres which is urgently needed to maintain the supply chain."

Berg told Reuters in an interview on the conference's sidelines that he foresaw a tightening global supply in ethanol.

"The signs are that the (ethanol supply/demand) balance will be tightening in 2010," Berg said.

Referring to the modest global ethanol surplus expected in 2010, he said: "This surplus is desperately needed in order to maintain the supply chain.

"Ethanol demand continues to grow and therefore we need surpluses in order to keep the stocks-to-use ratio unchanged."

However, Berg said he forecast a lower stocks-to-use ratio in 2010, meaning that the global ethanol market would tighten.

Global ethanol manufacturing capacity is expected to rise by 4 percent in 2009 versus 2008, Berg said.

"According to our data, global ethanol manufacturing capacity will increase by only 4 percent this year, compared with 2008 when it expanded by a third for the second consecutive year," he said in a keynote speech to the conference.

Berg also predicted that Brazilian ethanol exports in 2010 would be little changed compared with 2009, and were likely to stand at more than 3 billion litres.

HEAVY RAINS IN BRAZIL

A poorer than expected Brazilian cane crop due to recent heavy rains will cut ethanol output forecasts by 2 billion litres compared with previous predictions, Berg told Reuters.

Growth in Brazilian ethanol consumption is likely to fall year-on-year in 2010, in part due to higher ethanol prices in Brazil this year compared with 2008, Berg said.

He said Brazilian mills would prefer to produce sugar rather than ethanol because of the high sugar price, into next year and possibly into the 2010/11 crop year.

"At the moment prices for ethanol are recovering, but not to the extent that they will be on a par with sugar prices," Berg said.

"Therefore the profitability of sugar production (in Brazil) will be more favourable than for ethanol."

source: reuters