Dow Chemical Co. (DOW) and Japan's Mitsui & Co. (MITSY, 8031.TO) said Tuesday they are starting a 50/50 joint venture to produce plastics from Brazilian sugarcane by 2013, as Dow picks up on a project that faltered during the global recession.

Without disclosing financial details, Dow said the endeavor "represents the world's largest biopolymers play and is Dow's largest investment in Brazil." Luis Cirihal, Latin America director for renewable alternatives at Dow, said the two companies plan to start building a sugarcane mill in the southeastern Minas Gerais state during the third quarter, with a goal of reaching production capacity of 240 million liters of ethanol by mid-2013.

The alcohol will then be dehydrated to ethylene gas used to produce polymers for packaging, hygiene and medical applications, Cirihal said.

The project builds on an earlier push by Dow to produce sugarcane-based plastics that was derailed in 2009 amid the global recession. That joint venture, set up in 2007 with former Brazilian sugar and ethanol producer Santelisa Vale, reportedly had a budget around $1 billion and was scheduled to begin production in 2011. But the effort was suspended as Santelisa struggled to reduce its debt burden at the height of the financial crisis.

Santelisa was soon taken over by French commodities group Louis Dreyfus, leaving Dow with 100% control of the operation and currently 17,000 hectares (42,007.9 acres) of sugarcane fields in Brazil.

"We've been planting, harvesting and selling sugarcane for the last several months," Cirihal said. He said the scope of the project is similar to the earlier version.

Once the Dow-Mitsui mill is ready to begin crushing cane two years from now, it will exclusively produce biopolymers, compounds that are expected to occupy a rising share of world plastics consumption in coming years as demand grows for environmentally friendly products. Dow doesn't plan on producing sugar or ethanol fuel in Brazil.

Cirihal said the Brazilian plant is aimed to be a "global-scale facility" primarily catering to Latin American demand.

"The market is very thirsty and ready to absorb new biopolymer capacity," he said.

-By Paul Kiernan, Dow Jones Newswires; (+55)11-3544-7074; paul.kiernan@dowjones.com

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