LMC Brazil Impact on EU.ppt - Latest Oil, Energy & Metals · PDF file · 2016-04-20impact on EU firms Martin Todd, KingsmanEU Sugar Seminar, ... We do not produce, ... This presentation

© 2016 LMC International. All rights reserved. www.lmc.co.uk

Brazil market evolution and its

impact on EU firms

Martin Todd, Kingsman EU Sugar Seminar, 14-15 April 2016

Table of Contents

How things looked when quota abolition was announced

How quickly things can change!

What next?

Conclusions

How things looked when abolition of

quotas was confirmed

© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016

World and EU white sugar prices R$/US$ exchange rate White sugar yields per hectare

At first, the prospects for exports looked excellent

The European Commission confirmed in mid-2013 that quotas would be lifted in 2017.

At that time, the world market looked very attractive and EU producers felt confident about the future:

• World white sugar prices were falling but attractive (€400/T); domestic prices we very high (€750/T).

• The Brazilian real was strong (R$2/US$ or R$1.5/US$), inflating the industry’s costs.

• White sugar yields in the EU were well ahead of those in C/S Brazil.

4

0 2 4 6 8 10 12 14

C/S Brazil

EU-28

France

Tonnes per hectare

0

200

400

600

800

Jul-06 Jul-08 Jul-10 Jul-12

€p

er

ton

ne

World White EU Reported

1.0

1.5

2.0

2.5

Jul-06 Jul-08 Jul-10 Jul-12

R$ p

er

US

$ &

€

R$/US$ R$/€


Brazil’s full cost of raw sugar production (FOB, including ROC) vs. No.11

A strong real had boosted Brazil's costs to 20 c/lb FOB

5

0

15

30

45

60

75

90

105

120

135

150

165

180

195

0

2

4

6

8

10

12

14

16

18

20

22

24

26

00/01 02/03 04/05 06/07 08/09 10/11 12/13

Re

al E

xch

an

ge

Ra

te (1

995=

100)P

rod

ucti

on

Co

st/R

aw

Su

ga

r P

rice

(U

Sce

nts

/lb

)

Ex factory costs Fobbing costs

World raw sugar price Real exchange rate


White sugar yields in C/S Brazil and the EU (EU-28 and France)

Brazil's sugar yields per hectare were falling

6

6

8

10

12

14

16

1996 1998 2000 2002 2004 2006 2008 2010 2012

To

nn

e p

er

he

cta

re

C/S Brazil EU-28 France

How quickly things can change!


World and EU white sugar prices R$/US$ exchange rate White sugar yields per hectare

The picture for EU producers quickly started to deteriorate

Soon after the EC’s announcement, market developments began to undermine producers’ confidence:

• World white sugar prices fell to unattractive levels (<€400/T).

• Domestic prices collapsed, wiping out producers’ profits.

• The Brazilian real also collapsed, providing a huge boost to the industry’s cost competitiveness and weighing heavily on world sugar prices.

The good news is that white sugar yields in the EU remain well ahead of C/S Brazil.

8

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jul-06 Jul-08 Jul-10 Jul-12 Jul-14

R$ p

er

US

$ &

€

R$/US$ R$/€

0

200

400

600

800

Jul-06 Jul-08 Jul-10 Jul-12 Jul-14

€p

er

ton

ne

World White EU Reported

0 2 4 6 8 10 12 14

C/S Brazil

EU-28

France

Tonnes per hectare


Brazil’s full cost of raw sugar production (FOB, including ROC) vs. No.11

The weak real has dramatically reduced Brazil's full costs

9

0

15

30

45

60

75

90

105

120

135

150

165

180

195

0

2

4

6

8

10

12

14

16

18

20

22

24

26

00/01 04/05 08/09 12/13 15/16 @R$4/US$

Re

al E

xch

an

ge

Ra

te (1

995=

100)P

rod

ucti

on

Co

st/R

aw

Su

ga

r P

rice

(U

Sce

nts

/lb

)

Ex factory costs Fobbing costs

World raw sugar price Real exchange rate

What next?


The global crop cycle is at a turning point … surpluses have turned into a deficit, which is growing as the extent of the El Niño weather impact is becoming clearer.

EU producers are hoping 2017 will be a favourable moment

11

-9

-6

-3

0

3

6

9

12

15

150

155

160

165

170

175

180

185

190

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Su

rplu

s/De

ficit (m

illion

ton

ne

s, rv)

Pro

du

cti

on

/Co

nsu

mp

tio

n (

mil

lio

n to

nn

es,

rv)

Surplus/Deficit World Production World Consumption


Meanwhile, expansion of the Brazilian industry has stalled … mills have been closing and sugar output has stopped rising.

Will the world market need the EU?

Greenfield projects vs. mill closures in Brazil Sugar and ethanol production (all Brazil)

EU producers are hoping 2017 will be a favourable moment

12

0

7

14

21

28

35

0

10

20

30

40

50

90/91 95/96 00/01 05/06 10/11 15/16

Eth

an

ol (b

illion

c

ub

ic m

etre

s, te

l qu

el)

Su

ga

r (m

illio

n t

on

ne

s,

tel

qu

el)

Sugar Ethanol

-15

-10

-5

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013 2014 2015

No

. o

f g

ree

nfi

eld

s/m

ill

clo

su

res

Greenfields Mill closures


Beet area in the EU has been falling for a long time, because of fixed quotas and rising yields.

There is no shortage of area at the right price, although factories may have to look further afield in some countries.

Area under beet in the EU-28 Change in area by member state since 2000

Growers can increase beet area

13

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000/01 2005/06 2010/11 2015/16

Millio

n h

ec

tare

s

-200 -150 -100 -50 0 50

Italy

Poland

Germany

Spain

Hungary

UK

Greece

Netherlands

Belgium

Denmark

Sweden

Finland

Lithuania

Slovakia

Romania

France

C Rep

Croatia

Austria

'000 hectares


In 2014/15, the industry showed it has the potential to produce more than 19 million tonnes.

And some producers can expand even further.

EU-28 sugar production: quota and total Expansion potential of EU processors

Processors have the installed capacity to increase as well

14

5

8

11

14

17

20

06/07 08/09 10/11 12/13 14/15

Millio

n t

on

ne

s,

wh

ite

va

lue

Quota Over-Quota

0 1 2 3 4 5 6

FranceGermany

PolandNetherlands

United KingdomSpain

BelgiumCzech Republic

ItalyDenmark

AustriaSwedenCroatia

RomaniaSlovakia

LithuaniaHungaryFinlandGreece

Million tonnes, white value

Production (2013-2015) Expansion Potential

Conclusions


• A few years ago, the outlook for the beet industry was very promising.

• However, Brazil has made its presence felt via its weak currency. Low world sugar prices combined with an over-supplied EU sugar market to depress EU prices and producers’ profits.

• The outlook is uncertain, although the global production cycle points towards firmer sugar prices in the short-to-medium term.

• Longer term, the world needs more sugar and Brazil’s expansion has stalled, for now at least.

• This outlook is promising for EU beet growers and processors, but refiners would prefer low world sugar prices.

• The volatile situation in Brazil makes it hard to plan far ahead. Meanwhile, planting decisions for the 2017 crop must be made within the next 3-6 months.

Eyes will remain on Brazil

16

Thank You


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LMC Brazil Impact on EU.ppt - Latest Oil, Energy & Metals · PDF file · 2016-04-20impact on EU firms Martin Todd, KingsmanEU Sugar Seminar, ... We do not produce, ... This presentation