Sugaronline Editorial - A peek behind the mask By Meghan Sapp

Published: 11/17/2017, 12:30:00 PM

The sugar industry looks like it has its house in order but it may well fall like a house of cards.



The sugar industry looks like it has its house in order but it may well fall like a house of cards.

 


The appearance of strength is beginning to unravel for some of the biggest sugar companies at a time when the industry looks to them for stability and guidance before heading into the next bear market. The days of high prices have been few and far between during this most recent deficit period, leaving few opportunities but for the smallest to consolidate while there’s still cash to floating around and the biggest to merge, buy, innovate and invest.

It hasn’t been so pretty, however, and though prices are currently between 5.5 and six month highs as analysts predicted half a year ago, they will soon return to the doldrums thanks to India’s bumper crop, the return of the European Union to the global market, and exporters like Pakistan who periodically decide that exporting 1.5 million metric tonnes looks like a good idea.

Cracks in the façade were seen this week at Raízen, Wilmar, British Sugar and even Alteo that could very well signal that all is not well when it very much needs to be.

For Raízen, the shock shuttering of two sugar mills in Sao Paulo state for as long as two years due to lack of cane supplies will see 330 employees sent home. Cane from those mills will be directed to other Raízen mills, so the overall crush won’t be impacted they say, but it leaves the company with two stranded assets that will need significant investment or sold for cheap going into a surplus market. The news came less than a week after BioSev announced a similar plan for a mill in Mato Grosso do Sul and the day before the long-awaited RenovaBio policy was finally submitted to Congress.

In Singapore, Wilmar reported a more than 13% drop in pre-tax profits for sugar from its operations in Australia because even though an agreement came through with cane farmers on sugar marketing more than six months ago, it still hadn’t managed to sell the sugar produced. Overall, the company saw earnings drop 5.7% during the most recent quarter compounded by biodiesel challenges in Indonesia. Shree Renuka is expecting Wilmar to bail it out of its dire financial straights in an agreement made in July that it expects to be done by January, but it may be hard to justify an investment like that under such circumstances.

Then there’s British Sugar, who despite a major communications campaign about the benefits of the beet sugar industry for the UK economy and how things will be even better after Brexit, the government has decided to go ahead with a complete ban on neonicotinoids in line with Europe. The company says the move will erase decades of yield improvements, resulting in between 25% to 50% of potential yield losses. It says a long transition until the middle of the next decade when varieties can be bred to resist the beet yellow virus is required but it’s not at all sure that’s the way the government will go.

Not to be forgotten is Alteo, Mauritius’ largest sugar miller, who following a late harvest and low cane availability saw its pre-tax profits fall 43% during its Q1 that will require a restructuring plan to be developed and presented to shareholders. It doesn’t bode well for its survival post-quotas in Europe nor going into a deficit market.

It’s very clear that everyone needs to get shipshape in a hurry before the surplus market comes back into full swing or it could very well lead to a bloodbath.

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