Sugar price recovery should be rapid, but modest, says Sao Martinho

15.02.2018

Sao Martinho expanded on ideas of a rise in sugar prices, as it underlined expectations of a shift by Brazilian mills to making ethanol, downplaying the threat of a removal of import tariffs.

Felipe Vicchiato, finance director at the Brazilian cane crusher, said that a boost to sugar prices from Brazilian mills converting more cane into ethanol instead would kick in only once the shift was apparent.

“So far, we just heard producers saying that they will just produce more… we don’t have any firm action in terms of increasing ethanol production, except for hearsay,” Mr Vicchiato told investors.

Brazil’s 2018-19 crushing season begins in April, with many plants beginning next month to restart activities after a seasonal break.

“So it’s only in March or June that we will have a better outlook.”

‘Recovery should be quick’

When the crushing season starts again in the key Centre South region, “and then we know that, for sure, that we will produce more ethanol, there should be a quick recovery”, in prices, Mr Vicchiato said.

“This is a very volatile market and so [price] recovery should be quick.”

However, he tempered expectations for the extent that sugar prices, trading at 13.34 cents a pound in New York for best-traded May raw sugar futures, will recover.

“We do not anticipate a price at 18 cents a pound as it was in the crop year 2016-17,” he said added, that “we should expect a price range of between 0.15-0.16 cents a pound as an average for the entire [2018-19] crop year.”

The comments came as Sao Martinho discussed results for the October-to-December quarter in which it had said that the market consensus of a world sugar output surplus of 5m-6m tonnes in 2018-19 - which has been a major pressure on prices - may prove too large, thanks to Brazilian dynamics.

“We believe the crop year starting in April 2018 in the Centre South region of Brazil may shift the consensus to a lower [world sugar output] surplus, since a large portion of the production mix may be allocated to ethanol production,” the group said in a statement.

‘Tariff will be maintained’

Mr Vicchiato countered speculation of a ditching of a 20% tariff introduced by Brazil last year on imports of US ethanol, above a quota of 600m litres – a removal which would, in undermining prices of the biofuel, cut values of sugar too.

While acknowledging that such a move had been reported, potentially linked to the removal by the US of taxes on imports of Brazilian beef, Mr Vicchiato said that the government had since distanced itself from a tariff removal.

“We do not see that as posing a risk to the next crop year,” he said.

“For now, we understand that the tariff will be maintained.”

‘There are some imports’

Without tariff removal, there was little danger of Brazil importing enough ethanol to undermine domestic values of the biofuel.

“Despite the tariff what is happening today is that there are some anhydrous ethanol ships coming from the US to supply the local market,” he said.

However, this only made financial sense in certain regions, and faced the headwind of the ramping up of Brazil’s own production as the 2018-19 crushing season starts in the Centre South.


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