Brazil fuel retailers ask govt to cut ethanol blending in gasoline

SAO PAULO/NEW YORK, May 14 (Reuters) - Fuel retailers in Brazil have asked the government to reduce the amount of ethanol required to be blended into gasoline, saying a smaller production in the current season has reduced the biofuel's supply and increased prices.

Fecombustiveis, an association representing around 40,000 gas stations in Brazil, asked for the ethanol blend in gasoline to be reduced from 27% currently to 18%, saying the smaller sugar cane crop this year due to drier-than-normal weather reduced ethanol production.

Nearly 90% of ethanol produced in Brazil is made from sugar cane, with around 10% being corn-based. The country's center-south cane crop is off to a slow start this year.

Fecombustiveis said it received reports from associated companies saying fuel distributors were having trouble acquiring enough ethanol from mills for the mandatory blending requirements, causing delays in gasoline distribution.

Brazil last month cut the amount of biodiesel it blends into diesel from 13% to 10% due to tight supplies and high prices.

Analysts expect a tight supply of ethanol this year, with mills giving priority to sugar production.

Ethanol prices are hovering around all-time highs according to Cepea.<0#ESQ-ETN>

Brazil's Enegy Ministry said it is following the supply situation and has not seen the need to cut ethanol blending.

"With the (cane) harvest just starting, it is doubtful a change would be made now," a U.S.-based sugar broker said, adding that an ethanol blending cut would mean larger gasoline imports.

Brazil's sugar and ethanol industry group Unica denied shortages in the market, adding that production should improve as the harvest progresses.

A likely alternative for any ethanol tightness in Brazil would be imports from the United States, brokers said. But that became more expensive when Brazil ended a tax-free quota last year.

"Removing the 20% tariff on U.S. ethanol would be a much smarter solution (than cutting the blend)," said the head of U.S. ethanol group RFA, Geoff Cooper. (Reporting by Marcelo Teixeira; additional reporting by Roberto Samora; Editing by David Gregorio and Aurora Ellis)