UPDATE 1-Brazil Cosan to crush more cane to ethanol -CEO

(Adds CEO's comments, other details, byline)

By Roberto Samora

SAO PAULO, June 4 (Reuters) - Brazil's Cosan (CSAN3.SA), the country's largest sugar and ethanol producer, will crush 45 percent of the 2007/08 (May/April) cane crop into ethanol, up from 35 percent last year, to meet growing demand for the green fuel, the company's chief executive said on Monday.

In April, Cosan said that it planned to raise cane output from 40 million tonnes this year to 50.6 million tonnes by 2012. Brazil, the world's biggest cane grower, is expected to harvest a record 468 million tonnes crop this year.

"Cosan is making as much ethanol as it can," Rubens Ometto told reporters at a two-day biofuel summit in Sao Paulo, noting that Cosan was geared more toward producing sugar.

The government estimates that 50.5 percent of cane for industrial use will be crushed into ethanol and 49.5 percent into sugar this year.

Asked by Reuters if higher ethanol output was prompted by falling world sugar prices, Ometto said: "No, the sugar and ethanol sector must give priority to supplying the domestic market, the surplus is for export."

He said that sugar and ethanol prices were directly linked.

"If ethanol rises, sugar follows," he said, adding that production changes in line with prices.

The domestic market should grow, given a scenario of cheaper ethanol, but fuel distributors must pass on the lower prices to consumers, Ometto said.

He noted that higher prices rises are immediately passed on to flex-fuel motorists.

Brazilian demand for ethanol is being driven by the growth of the flex-fuel market. Launched in 2003, flex-fuel vehicles now account for 84 percent of all new vehicle sales in Brazil.

Brazil is the world's largest exporter of ethanol, but it shipped only about 20 percent of output of 17.7 billion liters in 2006, mostly to the United States.

Ometto said he expected Brazil to export about 3.5 billion liters of ethanol this year, similar to last season.

Export growth depended on investment in transport infrastructure, he said, adding that he supported the idea of a partnership with state-owned oil producer Petrobras (PETR4.SA) to build an ethanol pipeline from inland cane areas to ports.

Petrobras said late last month that it was seeking partners to build a second export-oriented ethanol pipeline from the center-west to the southern port of Paranagua.

Petrobras does not yet produce ethanol and is a relatively small exporter but it aims to become a major player in the world ethanol market.

It is working on a project to enable an existing diesel and gasoline pipeline to carry ethanol from Paulinia in the interior of Brazil's main cane state Sao Paulo, to a Rio de Janeiro port.