Cosan 'optimistic' on sugar prices, despite benign Brazilian weather

21.02.2017

Cosan said it was "optimistic" over sugar and ethanol prices, citing setbacks to world production, and containing expectations for output next season in Brazil, where it is the top-ranked cane crusher.

Cosan acknowledged that in Brazil's key Centre South region, where the 2017-18 cane processing season begins in April, "weather has been favour so far, with good rains".

For the group itself, "assuming this condition is maintained, we expect to crush between mid and top" of the range of 59.0m-63.0m tonnes of cane it has forecast processing next season.

However, that does not imply necessarily a significant uptick from 2016-17 when it targeted a crush of 59.0m-61.0m tonnes, and had achieved 59.4m tonnes as of the end of December, when the active processing season is all but over.

'Optimistic on ethanol, sugar prices'

"The market seems to be a little bit more optimistic about the Brazilian crop," Cosan investment relations officer Paula Kovarsky told investors.

Cosan forecasts for 2017-18 and (2016-17 forecast)

Volume of cane crushed: 59.0m-63.0m tonnes, (59.0m-61.0m tonnes)

Volume of sugar produced: 4.30m-4.70m tonnes, (4.2m-4.6m tonnes)

Volume of ethanol produced: 2.0m-2.3m litres, (1.9m-2.2m litres)

Adjusted ebitda: R$3.90m-4.30m, (R$3.00m-3.30m)

Capex: R$2.10m-2.40m, (R$1.9m-2.2m)

"But in our opinion, there are no fundamental changes" to make to previous expectations for 2017-18.

Indeed, on prices, "we remain optimistic with the sugar and ethanol outlook for the 2017-18 crop season".

Last season, "production in major producing countries ending up being smaller than expected, correcting sugar price weakness observed late last year".

'Accelerated hedging'

In Brazil itself, "the ethanol supply and demand outlook remains tight," allowing prices of the biofuel to trade with less of discount to gasoline than they have historically.

Nonetheless, Ms Kovarksy said that Cosan had "accelerated our hedging" over the last three months, to exploit "a favourable combination" of high sugar prices and a Brazilian real which remained historically weak, if reviving.

Cosan had, as of the end of December, hedged 1.78m tonnes of sugar for 2017-18 at 17.3 cents a pound, equivalent to R$0.70  per pound.

That represented an increase of 388,000 tonnes on the end-of-December volume, and was equivalent to a "bit over 50% of our exportable volumes".

The figure was also a little higher than the 1.71m tonnes of sugar hedged forward for 2016-17 as of the end of December 2015.

'Maximum sugar production'

The company also stressed the low level of investment being made in fresh capacity by mills still struggling to overcome historic debt problems, and using harvest proceeds for repaying and servicing borrowings.

However, Cosan itself revealed expectations of an increase in its own capital expenditure in cane in 2017-18, to R$2.10bn-2.40bn, which Ms Kovarksy said was "a little wider" than that expected for this season, which had a target range of R$1.90bn-2.10bn.

"There are projects targeting sugar maximisation" - in terms of raising the proportion of cane turned into sweetener rather than ethanol – besides seeking "productivity enhancements" and logistical improvements.

Already "we usually target maximum sugar production", she said.

Cosan in the April-to-December period turned 57% of cane into sugar, up from 55% from the figure for the same period of last year.


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