FOCUS on BRASIL. Sustainability: new ways forward

Transcription

1 FOCUS on BRASIL Sustainability: new ways forward

2 Last surplus cycle: 5 hard years for some Last surplus cycle started in 10/11 and ended in 15/16 thanks to climate issues impacting production over northernhemisphere countries. Prices collapsed since 10/11, from 29 to about 13 c/lb in 14/15. Source: COFCO Intl. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 2

3 How did Brazilian producers behave? Planting levels dropping from 23% to lower than 15% due to lack of expansions (new facilities) and lower renovation (cost reduction). Fields have become aged since then, as a consequence. 19 new mills have started but 69 have closed sice 10/11. Total industrial capacity has been reduced, but crush remains pretty stable within a range of 560 to 620 Mmt. Sugar and ethanol outputs have not surpassed a peak of 35.6 Mmt and 28.2 Mcbm, respectively. Total TRS is within a very small range, from 78 to 80.8 K kg of sucrose per ton of cane. Source: COFCO Intl. Source: UNICA Elaborated by: COFCO Intl. Source: UNICA Elaborated by: COFCO Intl. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 3

4 Internal prices: White sugar and ethanol Domestic prices have been favorable or close to breakeven, but internal demand has suffered on the back of political financial issues and health concerns. Only 20 to 25% of total output is destined to internal demand. Ethanol prices, leaded by gasohol, were set at a fixed-tight range due to Government actions to freeze energy prices domestically. Scenario was bad-bad: bad producing sugar, worse producing ethanol. Source: CEPEA-ESALQ and COFCO Intl. Source:COFCO Intl. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 4

5 Consequences on balance sheet Negative Net Profits from 12/13 to 15/16 and NY#11 prices levels sharply declining yoy from 25 to 14 c/lb on average. Mills decided to switch more sucrose to ethanol production throughout last Global surplus cycle. Sugarcane production kept almost the same since 13/14 campaign - varying mostly due to climate issues while accumulated Net Profit reached miserable negative USD 8B! Source: UNICA and COFCO Intl. Elaborated by COFCO Intl Source: UNICA and COFCO Intl. Elaborated by COFCO Intl Source: UNICA and COFCO Intl. Elaborated by COFCO Intl 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 5

6 How did other producers react to the surplus? Acreage on BRA CS did not surpass 110% of the 09/10 campaign, while India and Thailand increased by 125% and 142%, respectively. EU has invested on technology and reached almost 12.4 mt of sugar per hectare on average. BRA CS is parked in 10.5 levels. BRA NNE levels have desperately dropped to lower than 6 mt/ha. Thailand and India have invested on acreage but Sugar Yields remain steadly. Source:COFCO Intl. Source:COFCO Intl. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 6

7 Global SnD: an overview for next two campaigns According to current assumptions (weather; Yields trends; acreage) a new surplus cycle is about to come again! Remembering that last one just eased owing to climate issues... Source: COFCO Intl. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 7

8 Global COP: who are the most competitive ones? My COP shall be lower than my competitor, because if market needs to trim production somewhere, I ll stay alive. Domestic prices support internal production in many countries. They tend to keep doing that. Source:COFCO Intl. Source:COFCO Intl. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 8

9 How can Brazilian producers survive? To improve competitiveness, the sector in Brazil will need to focus on: 1. Flex mills: corn ethanol; 2. Bioenergy cogeneration; 3. Technology on agricultural operations; 4. Technology on new cane varieties; 5. Consolidation: groups absorbing cane from high-indebted mills; 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 9

10 Flex mills: corn ethanol Opportunities: fixed-cost reduction by milling corn during sugarcane interseason; usual high ethanol prices during that time. Challenges: SP state is far away from the main corn producer area (logistical issues); high initial cost to invest; political uncertainties on internal future energy prices. Source:IBGE Source: UNICA Elaborated by: COFCO Intl 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 10

11 Bioenergy cogeneration Opportunities: very profitable market; Brazil will clearly demand more energy in the future. Challenges: high initial cost; political uncertainties on internal future energy prices. Source: CCEE Elaborated by: COFCO Intl Source: UNICA; MME and CCEE Elaborated by: COFCO Intl 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 11

12 Technology on agricultural operations Opportunities: cost reduction by increasing internal productivity and Agricultural Yields. Challenges: high initial cost; lack of skilled labor Source:COFCO Intl. Source:COFCO Intl. Source:COFCO Intl. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 12

13 Technology on new cane varieties Opportunities: Sugar Yields increase (Agricultural Yields and Sugar Recovery) levels; vulnerability reduction. Challenges: high initial cost; it takes longer to a new variety be commercialized. Source: CTC Elaborated by: COFCO Intl Source: CTC Elaborated by: COFCO Intl 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 13

14 Groups consolidation Opportunities: reduction on transportation cost (small mean radius); reduction on leasing cost. Challenges: high-indebted mills face serious fiscal and environmental issues. Source: UNICA Elaborated by: COFCO Intl. Source: UNICA Elaborated by: COFCO Intl. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 14

15 Conclusion 1. Due to the huge difference in COP among players in Brazil, we foresee a consolidation of the sector in the next 5 years with no expansion in cane volumes. Mills above 4 MM tons with cogen tend to absorbe minor ones. Ideal radius of 50 Km will be a crucial point for mill s sustainability. 2. Ethanol expansion - if needed - will come from corn in current assets (sugarcane - flex) or new projects (greenfields of corn) in MT and Goias State. 28/11/2017 Copyright 2017 COFCO International. All rights reserved. 15

16 Thank You