Sugar woes mean more Brazil cane mill closures

December 19th, 2014

By:

Category: Sugar

Sugar-Sacks450x299(Agrimoney) – A further nine mills in Brazil’s Centre South key will close for next season’s harvest, taking the total mothballed capacity to 20%, amid mixed expectations for the region’s cane production potential.

Both sugar merchant Czarnikow and Unica, the Brazilian cane industry group, forecast nine mills closing in the Centre South during the off-season – which lasts from around now to March-April, when the cane harvest begins ramping up again amid what is typically drier weather.

“The industry is suffering from a loss of consumer confidence in the hydrous ethanol market, fixed gasoline prices and increased difficulty in servicing dollar-denominated debt,” London-based Czarnikow said.

Brazil operates a cap on gasoline values which, in limiting prices of rival fuels such as ethanol too, affects the market for sugar, which competes with the biofuel for cane.

The country has also suffered a fall in the real to nine-year lows against the dollar earlier this month, rendering it increasingly burdensome for Brazilian groups to service dollar-denominated borrowings.

Unica, which also forecast one mill opening, said its forecast reflected the “poor financial condition of a good part” of the sector.

‘Limited upside’

The closures will add to the 60 that have already shut over the past decade, with mill openings slowing to seven in the past four seasons.

However, Czarnikow and Unica signalled different outlooks for the Centre South region next year, with the industry group foreseeing “more positive market conditions” for mills, thanks to the potential for a slip of the world industry into a production deficit.

The weaker real should enhance Brazil’s sugar export prospects too.

Czarnikow, though, highlighted “limited upside” next season for cane output, hurt this year by an unusually persistent drought.

“Investment in fields has reduced,” the merchant said, adding that this “has led to a reduction in all types of cane planting”.

Estimate upgrade

Unica made its comments as it lifted by 21m tonnes, to 567m tonnes, its estimate for the Centre South cane crush in 2014-15, with the forecast for sugar output lifted by 580,000 tonnes to 31.94m tonnes.

The upgrade had been expected, given that both cane processing, and sugar output, volumes surpassed Unica’s initial targets last month.

The season ends in March, although there is typically little activity after Christmas.

Antonio de Padua Rodrigues, the Unica technical director, said the revisions reflected raised cane area and yields in some regions that were not affected by the drought which hit the heart of the sugar belt.

Producers in Mato Grosso do Sul and Goiás, outside the key state of Sao Paulo, enjoyed higher cane yields, he said.

‘Reflected in prices’

Czarnikow mades its comments as it revised to a 600,000-tonne surplus, from a 500,000 deficit, its estimate for the world sugar output balance sheet in 2014-15.

The revision reflected in the main a cut of 1.3m tonnes, to 178.8m tonnes, in the estimate for world consumption this year, with revisions to production largely balancing out,

While cutting by 1.0m tonnes, to 31.9m tonnes, its forecast for Centre South output, and slashing its estimate for Thai production by 1.7m tonnes to 11.1m tonnes, the group lifted its forecast for European Union output by 1.3m tonnes to 19.0m tonnes, and for Indian volumes by 1.1m tonnes to 29.0m tonnes.

With this season the fourth in succession to show a production surplus, “the market remains well supplied”, Czarnikow said.

“This is likely to be reflected in prices in the first few months of 2015.”

In fact, raw sugar futures, which set a two-month low of 14.62 cents a pound in the last session, extended a rebound on Thursday, adding 1.6% to 14.95 cents a pound for the benchmark March contract in morning deals in New York.

Add New Comment

Forgot password? or Register

You are commenting as a guest.