Suedzucker's sugar division hit by production drop, low prices

London — Germany-based Suedzucker, the world's largest corporate sugar producer, Tuesday highlighted difficult operating conditions by saying it expects to produce 4.3 million mt of sugar in its 2019-20 (March-February) fiscal year, down 300,000 mt on the year, from 28.4 million mt of beet, down from 29.3 million mt in 2018-19.

It also said it expects a full-year operating loss in its sugar business of Eur200 million-Eur260 million ($222 million-$289 million), after a loss of Eur239 million the previous year, on low European sugar prices and lower volumes.

Suedzucker said its results has been hit by EU sugar prices that did not cover production costs, and "sharply lower sales volumes, mainly in exports" as a result of another year of tough growing conditions. Sugar revenues for the first nine months of its fiscal year fell 15.6% on the year to Eur1.739 billion.

Preliminary figures from the European Commission showed this lack of exports. EU-28 sugar exports in November 2019 were just 89,000 mt, a sharp drop from 157,958 mt a year earlier and 323,729 mt in November 2017.

EU sugar production in 2019-20 (October-September) is expected to be lower for a second consecutive season following the dry growing conditions of 2018, dry, early-season conditions in 2019, followed by an unusually wet late season which limited sugar beet yields and cut the sugar content.

S&P Global Platts Analytics forecasts EU sugar production will be down 443,000 mt at 17.488 million mt in 2019-20.

Suedzucker said that "prices are expected to rise during the course of the sugar marketing year 2019-20" and spot market delivered sugar was assessed Friday by S&P Global Platts at Eur454/mt, Eur142 higher than all-time lows in May 2018.

However, the spot market represents a limited amount of European sugar, and with producers locked into longer-term contracts, it will take a while for higher prices to affect the bottom line. October 2020 is widely accepted by the market as the month when current contracts, negotiated during an all-time low pricing environment, will come to an end and producers will be able to renegotiate.

The company did confirm its forecast for a full-year consolidated group operating profit of Eur70 million-Eur130 million, up substantially from Eur27 million a year earlier. This was supported by the strong performance of the CropEnergies biofuels unit, which "generated significantly higher revenues of Eur604 million against Eur532 million a year earlier."

S&P Global Platts T2 FOB Rotterdam ethanol assessment averaged Eur605.57/ cu m over March-November, up significantly from Eur475.28/ cu m a year earlier.