August 5, 2015
Sugaronline | http://goo.gl/s2DrHA
European sugar companies are getting ready for a surge in overseas sales when export restrictions end in 2017, opening the door for competition with major producers such as Brazil, according to Bloomberg.
The European Union will become a net exporter of the sweetener and shipments may reach 4 million metric tonnes a year, according to Rabobank International. That’s almost triple the current maximum of 1.37 million tonnes.
A bigger presence by Europe in the sugar market may shift trade patterns for Brazil, which dominates the global industry and sells to countries in the Middle East and North Africa. Sugar prices have fallen to the lowest in six years after a glut that’s lasted since 2011.
“All the big traders are positioning themselves to get a piece of the pie,” said Tracey Allen, an analyst at Rabobank in London. “There’s going to be a lot of competition for that volume.”
European trading houses are preparing for more business. French producer Tereos bought Napier Brown Sugar in May and started a distribution business last year. Most growers use sugar beets to extract the sweetener and have seen productivity increase with better growing techniques and favorable weather. Yields rose about 10% since 2009, Eurostat data show.
The opposite is happening in Brazil, where aging cane toward the end of a six-year crop cycle isn’t been replanted. Cane yields fell 4.8% in six years through the 2014/15 season, data from industry group Unica show. The country accounts for about 45% of global sugar exports, U.S. Department of Agriculture data show.
“If you take Brazil, where there’s practically no investment and no expansion in terms of capacity growth, you have to start looking around the world to see where you can see growth,” said Kona Haque, head of commodities research at ED&F Man Holdings Ltd. in London. “The EU can fill the gap.”
European farmers may switch to growing sugar beets instead of wheat because it’s more profitable, according to Claudiu Covrig, senior agricultural analyst in Lausanne, Switzerland for Kingsman SA, a unit of McGraw Hill Financial Inc.’s Platts. The increased supply could push sugar prices down even further, he said.
Brazil sends about a third of its sugar exports to the Middle East and North Africa, where the raw sweetener is turned into white sugar and sold to local consumers. European producers, who are closer to those buyers, already make refined sugar from beets.
Prices for raw and refined sugar are near the lowest in six years. The average sugar price in Europe may reach EUR400 a tonne by 2019, 4.1% lower than now, according to estimates from the European Commission in December.
Even with more exports, Europe would trail Brazil’s shipments that totaled 24.1 million tonnes in 2014, according to the International Sugar Organization. The EU may ship as much as 2.5 million tonnes in the first year after quotas end as it fights for business, Kingsman’s Covrig estimates.
“I don’t see exports going up through the roof,” he said. “It would be very hard to reconquer the channels lost since 2006.”