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December 2010

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The commercial dominates again :


What an amazing month November turned out to be. In last month’s news we wrote that the world price graph was ‘showing every sign of a scale change to the y axis being required when we bring you the news next’. That turned out to be true :

World Price

But, as you can see, the price plunged from a high of over 33 /lb by nearly 25% in a matter of two days in the middle of the month before continuing to climb at a [slightly] more sedate pace. It seems very likely that it will again push through the 30 /lb level before the end of the year but don’t bet on it!


Czarnikow published a crystal ball document last month : where will the sugar industry be in 2030? On the demand side they see growth of more than 50% [about 90 million tons raw value] to 260 million with Asia dominating the market. On the supply side they see half of that demand being met by improvements in productivity and changes to regulations around the world and the other half having to come from Brazil. Let’s review their report in 2030 then : watch this space!


There are interesting dynamics in the EU with the regime change actually pushing the community into a net import position, which was not the intention. The EU Commission is contemplating letting more out of quota sugar being exported [like last year when they argued that as the world price was so high it wasn’t dumping] while the industrial users association is arguing that the sugar is needed within the community. In the end we will probably see white sugar selling for the same price as before the change [if not higher] while farmers are getting substantially less for their beets.


Some of the Irish are dreaming of having their own sugar again. A group of them wants to build a new € 400 million factory to process beets into sugar and ethanol. They are also wanting to claim carbon credits by running the factory on renewables rather than fossil fuel. The sting is in the tail though : they recognise that they would need state support [from a country which has just borrowed € 80 billion to save its economy from collapsing]. It is only 3 or maybe 4 years since Irish Sugar shut down and sold off its last factory.


One can already see the start of the next collapse in Indian production as the farmers in UP demand ever higher prices for their cane – or switch to other crops. They were only lured back into growing cane by last year’s prices which were paid because of the cane shortage due to the weather conditions so will leave again just as quickly. This year the UP authorities set the guide price at 210 rupees per 100 kg but farmers are demanding last year’s actual value of 280 which equates to about US$ 65 per ton!

In Maharashtra, the largest producing state, the problem seems to be rain with output down 29% year on year in the first 7 weeks of the new crop. There is now expectation that the federal government will not permit exports, in part because of the crop fears in general and secondly because the reserves are nearer 1 months consumption than the 6 months which the government likes to hold.

In the meantime, government interference is also causing problems in the ethanol sector, this time the federal government. Its ethanol committee is recommending a cut-back in the mandated [we think 5%] addition of ethanol to gasoline and a reduction in the contract price which was set at 0.27 rupees per litre [60 US/ℓ].


One of the Czarnikow predictions [see earlier news item] is that China will be a larger consumer than the EU by 2014. China itself is predicting that in the four years from 2011 to 2015 its domestic balance will be over 12 million tons short. Expect to see other moves by China to secure that shortfall : it has already bought SCJ [but failed to by the CSR sugar division of course].


Rains late in the crop seem to be having an important impact on the Australian crop which is still running, some two months after a typical crop. The rain is reported to be 200 to 400% of normal for the time of year. There is talk of exports being little more than 2 million tons compared to the 3 million forecast. In many years that would be irrelevant but with sugar being only just over-balanced it is a significant shortfall.


The government in Australia has approved CSR’s sale of its sugar division [Sucrogen] to Wilmar – but subject to some conditions. Many of those relate to the asbestosis claims against CSR’s building division but some also relate to Wilmar. In a rather dinosaurian finding, Wilmar is limited how it can participate in Queensland Sugar, the industry’s export marketing company.


The situation heated up at the end of November when the federal Judge involved in the case ordered that the seedlings of parent plants currently in the ground be dug up. If that happened then there would be no seeds for the 2012 crop. Monsanto immediately stated that it would appeal the finding.


In a surprise announcement, Imperial has stated that it will close its Gramercy refinery at the end of 2010, long before the new refinery next door will be ready. It is unlikely that the new refinery [a joint venture with Cargill and the Louisiana sugar cooperative] will be producing commercial sugar before the end of 2011 if the performance of its sister plants in Syria and India is anything to go by.


BP is trying to bring its green credentials to the fore following the Mexican Gulf oil spill early in the year. One of its major thrusts is cellulosic ethanol in the US and its other is sugarcane alcohols in Brazil. However, with Cosan gone to Shell and other important players like Bunge buying up the larger groups, it is not easy to see how a company of BP’s size can buy in to any significant production capability in that country.


Cosan, now owned by Shell and the world’s largest producer, is commenting about the strength of the Real and the impact that is having on the cost of production. That too must surely add to the pressure on the world price unless there is a correction in the exchange rate : Goldman’s is calling the Real the most over-valued currency in the world at the moment.


Outgoing President Lula has inaugurated the construction of a major ethanol pipeline system in Brazil. The US$3 million aims to install 1200 km of pipe to pump up to 20 million m per annum ethanol from the sugarcane areas to the main domestic consumers and to two export ports, one in Sao Paulo state and the other Rio de Janiero state.


The Sudan’s White Nile has announced an expansion even before it has entered production [following a difficult 9 year gestation period] : it is going to build an ethanol plant and an animal feeds plant to use its by-products using China’s CAMC Engineering. The plants are due to be operational by the time that the main project comes on line but having seen some of CAMC’s work in the past we have to question that.


Billy Rautenbach, associate of Robert Mugabe, is saying that he will have a 350 000 ℓ/d cane distillery operational at Chisumbanje by March 2011 and is claiming to have invested US280 million in the project. The project is late though and this year 100 000 tons of cane was sold to Triangle. As that equates to only 10 days or so consumption for such a distillery, we have to assume that they reserved a lot of cane as seed cane for increasing their land area under cane.


Illovo, the largest of South Africa’s sugar companies owned by British Sugar, expects to export 300 000 tons to the EU this year but its total exports will be substantially down due to the drought conditions in South Africa. All of the EU exports will come from Zambia, Malawi and Tanzania because those countries are allowed duty free access under the EBA protocol.

Meanwhile, Tongaat Hulett, the second largest of the South African companies, is predicting a one third increase in production at its two Zimbabwean estates to a combined output of 350 000 tons : heading slowly back towards the 600 000 annual production levels before the economy collapsed. Of significance too is a change in the EU’s attitude : it is putting, albeit small, bridging loans forward to Zimbabwe and talking of bringing more raws into the EU from that country.


South Africa’s Illovo has long produced furfural from bagasse [one suspects that its technology was borrowed for the new plant in Australia] and now it has won approval form the US EPA for a furfural derivative which is a nematicide. It might be useful on some sugarcane lands.

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