Thai ethanol producers struggle as local demand stagnates

RATCHABURI, Thailand, April 3 Tue Apr 3, 2012 3:52am EDT

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RATCHABURI, Thailand, April 3 (Reuters) - Ethanol producers in Thailand are stepping up efforts to find export markets after government policy flip-flops have left domestic sales far below expectations and raised doubts about ambitions to make the country an Asian hub for the fuel.

Thailand can produce 3.26 million litres a day from 20 plants and the government wants to almost triple that in 10 years to 9 million.

"We aim to be a regional hub and we have the potential, since we have plenty of raw materials, not only molasses, but also tapioca, to supply the ethanol industry," said Nathie Thabmanie, deputy director of the Energy Policy and Planning Office, during a recent tour of an ethanol facility.

But domestic demand is just 1.2-1.3 million litres a day and plants are running at half capacity as the government has wavered on trying to prod motorists to use more gasohol, a blend of ethanol and gasoline.

Producers have also been squeezed by government intervention to help farmers, which has pushed up the price of tapioca chips.

"At this stage, domestic demand is still low," said Jutamas Arunanondchai, an executive at Rajburi Ethanol Co Ltd, adding the company wanted to export more to offload surplus production.

Jutamas said producers were targeting traditional ethanol importers such as South Korea and Japan, which use it in the liquor, chemical and biofuel industries. They were also banking on an increase in demand from the Philippines as the government there is trying to promote cleaner gasohol.

Thai exports tripled to 132 million litres in 2011 from 45 million in 2010, data from the Thai Ethanol Manufacturing Association shows.

That followed a government move to cut fuel prices by removing levies on some gasoline last August, giving Thai drivers less incentive to switch to the cleaner fuel.

The government reimposed levies on some fuel prices in January and has also announced a halt to the sale of pure 91-octane gasoline from October to reduce crude imports and support the biofuel sector.

Even so, producers have become wary of increasing capacity as the government would like.

"With high tapioca prices, we need to switch to molasses, whose production is quite limited. At this stage, we really don't know whether we should raise our ethanol output to the target," said Siriwut Siempakdi, president of the Thai Ethanol Manufacturing Association.

($1 = 30.8700 Thai baht) (Editing by Alan Raybould and Matt Driskill)

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