Global Trends & Perspectives for Sugar Plinio Nastari DATAGRO UNITED STATES DEPARTMENT OF AGRICULTURE WORLD AGRICULTURAL OUTLOOK FORUM February 19-20, 2015 Crystal Gateway Marriott Hotel, Arlington, Virginia
Variables influencing Sugar Trends Exchange rates Ag productivity Cost of logistics Intensity of Diversification Production factor costs T&EPAs Regulatory & Investment Environment 3
Brazil in the world of cane 35.3% of world s cane supply (2014); 42.7% of world exports is 42.7% (2014); 29.8% of Cane dedicated to Export Sugar (2014). 4
Brazilian Sugar Exports (in million tons tel quel) 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2014 1,5 1,7 2,1 3,4 3,8 3,9 5,1 5,9 6,4 6,5 8,4 11,2 12,1 13,4 12,9 15,8 18,1 18,9 19,4 19,5 24,3 25,4 24,3 24,1 27,2 28,0 Source: MDIC/SECEX 5
Advantage of Diversification towards Ethanol Enabled sugars in molasses, usually sold at discount over sugar, to be priced closer to sugar equivalent. 6
Ethanol substituted between 1975-2014 2.41 billion barrels of gasoline Proved reserves of oil & condensates (including Pre-Salt) in 2014: 13.13 billion barrels (SEC),or 16.61 billion barrels (SPE/WPC). Between 1975 & 2014, volume de gasoline substituted by ethanol: 2.41 billion barrels At current pace, every year another 127 million barrels are substituted without the need of new investments because it is renewable!
Hard currency savings Between 1975 & 2014, substituted gasoline valued at its world price enabled savings of US$ 185.4 billion, without considering the cost of foregone debt, or US$ 381.3 billion, considering the cost of foregone debt (estimated at Prime Rate + 200 base pts). Source: DATAGRO Brazil s foreign reserves (January/2015): US$ 372.93 billion.
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SIZE OF THE DOMESTIC FLEET (OTTO CYCLE) 25 20 15 MIllion units Flex-Fuel Vehicle Fleet Vehicle Fleet by Type of Fuel (2014) 12.23 14.92 17.96 20.85 23.12 Ethanol 2.23% Gasoline 30.77% 10 9.47 6.88-5 0.05 0.38 1.19 2.61 4.59 Flex Fuel 67.00% Source: DATAGRO Source: DATAGRO Flex cars were responsible for 67.0% of total light vehicle fleet. This proportion is rising every year: 2013: 63.12% 2012: 58.02% 2011: 52.07% 9
Million tons of TRS equivalent Brazilian Supply of Sugar+Ethanol (in TRS equivalent): with intense growth 2003-2010 period 90,0 75,0 60,0 Sugar Anhydrous Hydrous 14/15e CS+N/NE 31.3% 45,0 25.1% 30,0 15,0 43.6% - Source: DATAGRO Note: TRS is Total Reducing Sugars, a common denominator for sugar and ethanol.
Exchange Rate (Reais per US$) 4,00 3,96 3,50 3,21 3,00 2,85 2,50 2,48 2,00 1,50 1,72 1,56 1,53 1,00 Source: Brazíl s Central Bank (BACEN). 11
Factors affecting Brazil s Sugar Industry Government intervention in the domestic price of gasoline, sold at subsidized levels to consumers during last 6 years; 12
Price of Gasoline Differential in Brazil (% difference between Price at Refinery in Brazil and RBOB Houston) 80,0% 60,0% 62,52% 40,0% 20,0% 20,44% 0,0% -20,0% -29,87% -29,70% -24,70% -40,0% 13 Source: DATAGRO
Factors affecting Brazil s Sugar Industry Government intervention in the domestic price of gasoline, sold at subsidized levels to consumers during last 6 years; Adverse climate conditions since 2009; Rise in production costs caused by: high debt and debt services caused by the financial crisis of2008/09, and the profound operational consequences of the rapid mechanization of harvesting and planting. 14
Million tons of TRS equivalent Stagnant investments in crush capacity since 2010, and bumpy road until 2014 90,0 75,0 60,0 Sugar Anhydrous Hydrous 45,0 30,0 15,0 - Source: DATAGRO Note: TRS is Total Reducing Sugars, a common denominator for sugar and ethanol.
02-Apr-14 09-Apr-14 16-Apr-14 23-Apr-14 30-Apr-14 07-May-14 14-May-14 21-May-14 28-May-14 04-Jun-14 11-Jun-14 18-Jun-14 25-Jun-14 02-Jul-14 09-Jul-14 16-Jul-14 23-Jul-14 30-Jul-14 06-Aug-14 13-Aug-14 20-Aug-14 27-Aug-14 03-Sep-14 10-Sep-14 17-Sep-14 24-Sep-14 01-Oct-14 08-Oct-14 15-Oct-14 22-Oct-14 29-Oct-14 05-Nov-14 12-Nov-14 19-Nov-14 26-Nov-14 03-Dec-14 10-Dec-14 17-Dec-14 24-Dec-14 31-Dec-14 07-Jan-15 14-Jan-15 DATAGRO PRICE EQUIVALENCIES For typical mill located in RIBEIRAO PRETO, SP US$ c/lb FOB 22 21 20 19 18 17 16 15 14 13 NY 11 (US$c/lb) Domestic Sugar Anhydrous Hydrous VHP Santos FOB Source: DATAGRO 16
million tons Brazil: production of sugar has fallen since 2012 40,0 38,0 38,0 38,2 37,6 36,0 35,9 35,5 34,0 32,9 32,0 30,0 09/10 10/11 11/12 12/13 13/14 14/15e Source: Elaborated by DATAGRO, from data obtained with Sindicates of Producers.
billion liters Brazil: a new record production of ethanol 30,0 achieved in 2014/15 28,0 27,4 27,5 28,2 26,0 25,7 24,0 22,0 22,6 23,2 20,0 09/10 10/11 11/12 12/13 13/14 14/15e Source: Elaborated by DATAGRO, from data obtained with Sindicates of Producers.
A large shift in production mix since 2012/13 100,0% 90,0% 80,0% 70,0% 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0% 12/13 14/15 27.9% 31.3% 21.8% 25.1% 50.3% 43.6% Sugar Anhydrous Hydrous Fonte: DATAGRO
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 INDIAN SUGAR PRODUCTION IN GOOD PACE Sugar Price Vashi, Maharashtra India s government is inclined to renew the sugar export subsidy at 4,000 rupees per ton (equivalent to 65.5 dollars per ton), with the objective of exporting up to 1.4 million tons in 2015, restricting it to mills that produce ethanol, thus providing an incentive to their diversification. India has an installed sugar production capacity of 31 million tons, and it should be expected that the current production of around 26 million tons white value (against 24.27 million tons in the previous crop) may rise steadily towards the 29 to 30 million ton level in the medium term. 3,400 3,300 3,200 3,100 3,000 2,900 2,800 2,700 2,600 2,500 Rs/100kg Source: NCDEX 20
DROUGHT HITS THAILAND 12 Thai Sugar Production 11 10.24 10.02 10 9.64 11.29 10.85 9 8 7.80 7 7.20 7.23 In Thailand, we also observe a steady expansion path. While the current crop is being affected by drought, exports may reach a record 8 million tons in 2014/5, with ending stocks still maintaining a high level around 8.05 million tons. 6 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15* Source: DATAGRO Acreage in cane can grow 74% in the next 3 years, from 1.48 to 2.57 million hectares, from a government-led program of conversion of rice acreage to cane. Considering current productivity, Thailand can produce 18 to 19 million tons of sugar in 2017/18. With domestic consumption of only 2.5 million tons,
Million tons (white value) RUSSIAN SUGAR PRODUCTION IN 2014/15 ABOVE EXPECTATION Russia, which used to import more than 5 million tons of sugar per year, in 2014/15 will import less than 890 thousand tons. Russia s beet production continues to expand benefiting from import tariffs that range from 171 to 240 dollars per ton, during the year. The region s customs union is strengthening trade links between Russia and nearby countries, which have also benefited from significant productivity gains in beet. 7 6 5 4 3 2 1 Russia's sugar production and consumption Production Domestic Consumption 5.82 5.23 5.33 5.45 5.23 5.11 5.36 5.37 5.39 4.75 4.44 4.43 3.48 3.20 3.22 2.73 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Source: DATAGRO 22
OTHER FUNDAMENTS OF THE SUGAR MARKET In Australia, sugar production reached 4.55 million tons, an 8.3% rise over the previous year. For 2015, the same production level is expected. Tariffs, trade and economic partnership agreements (EPAs) continue playing an important role in determining flow trades and regional industry development. Europe is regaining its relevance in world sugar trade. Container return freight from Europe to Asia at nearly zero cost has brought renewed competitiveness for EC s white sugar with product from independent refineries in various destination markets. Colombia, Peru and certain Caribbean countries are benefiting from their EPAs with the EC not only for the European market, but using it as a hub to access Asia. In NAFTA, the US reduced significantly its imports of sugar from Mexico in 2014/15. US Department of Commerce investigation recommended countervailing duties of 17.01% and anti-dumping charges of 47.26%. Decision is pending on the matter. 23
01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 WORLD SUGAR S&D FOR 2014/15 INDICATES LOWER DEFICIT World Sugar Balance - Surplus/Deficit millions tons (raw value) 6.50 7.60 6.04 5.39 9.19 0.31 2.50 2.35-0.77-2.34-1.20-3.61-2.05-0.82 Source: DATAGRO -9.46 24
48% 46% 44% 42% WORLD SUGAR STOCKS Stocks/Consumption Ratio 42,6% 45,3% 43,6% 42,9% 46,9% 44,2% 42,0% 44,8% 45,3% 45,6% 42,8% 40% 38% 36% 34% 32% 34,0% 35,4% 39,6% 36,9% 36,8% 33,5% 35,8% 40,2% 30% For 14/15, relation stock/consumption should fall marginally to 45%, a level that still provides comfort to maintain market supplied; An accumulated deficit of 7 million tons is needed to bring the ratio down by 4 percentage points. 25
DATAGRO s World Sugar S&D Production Sugar Production (in metric tons raw value) - Period October/September 2012/13 2013/14 2014/15 Var. 14/15 vs. 12/13 Brazil 40.050.885 37.726.671 35.482.555-4.568.330 EU 17.035.339 16.634.398 19.133.916 2.098.577 Thailand 10.343.458 11.639.342 10.955.818 612.360 India 26.508.413 25.246.832 27.413.043 904.630 United States 7.920.916 7.926.149 7.610.239-310.677 Mexico 6.900.261 6.067.708 6.200.000-700.261 Russia 5.132.065 4.797.130 4.786.326-345.739 Others 62.229.907 63.506.424 61.741.354-488.553 World 176.121.244 173.544.654 173.323.251-2.797.993 Source: DATAGRO. 26
DATAGRO s World Sugar S&D Consumption Sugar Consumption Production (in (in metric metric tons tons raw raw value) value) - Period - Period October/September 2012/13 2013/14 2014/15 Var. 14/15 vs. 12/13 Brazil 11.799.546 40.050.885 11.893.324 37.726.671 12.010.572 35.482.555-4.568.330 211.026 EU EU 19.280.127 17.035.339 19.292.543 16.634.398 19.293.655 19.133.916 2.098.577 13.528 Thailand 10.343.458 2.735.175 11.639.342 2.745.002 10.955.818 2.755.439 612.360 20.264 India 24.431.185 26.508.413 24.841.957 25.246.832 25.371.957 27.413.043 904.630 940.772 United States 10.543.335 7.920.916 10.923.492 7.926.149 10.915.026 7.610.239-310.677 371.691 Mexico 4.398.563 6.900.261 4.494.244 6.067.708 4.683.007 6.200.000-700.261 284.444 Russia 5.638.366 5.132.065 5.650.871 4.797.130 5.701.450 4.786.326-345.739 63.084 Others 88.044.777 62.229.907 90.865.306 63.506.424 93.410.496 61.741.354-5.365.719 488.553 World World 166.871.073 176.121.244 170.706.738 173.544.654 174.141.601 173.323.251-2.797.993 7.270.527 Source: Source: DATAGRO. 27
Flags The government regulated price of gasoline in Brazil, and whether there will be a bail-out of the highly indebted part of the Brazilian industry; Consequences of the phase-out of sugar production quotas in Europe; Exchange rate movements between the US dollar and: the Brazilian Real, the Euro, the Thai baht, the Indian rupee, and the Russian ruble; The intensity of diversification towards ethanol in India, Thailand, Colombia and the Philippines; The speed of the Thai conversion from rice to cane; The impact of lower oil prices in Nigeria and other relevant sugarrelevant countries in Africa; and The final ruling and agreement on sugar between the US & Mexico. 28
PLANTING DATA HARVESTING SOLUTIONS www.datagro.com +55 11 4133 3944 FUTURE EVENTS CALENDAR 13 May 2015 (New York Sugar Dinner) 9 th ISO DATAGRO New York Sugar & Ethanol Conference Waldorf=Astoria Hotel, New York 10 July 2015 4 th Sugar & Ethanol Summit Brazil Day IoD Institute of Directors, London 25 August 2015 4 th DATAGRO Ceise Br Fenasucro Conference Sertaozinho, Brazil 21-22 September 2015 (Sao Paulo Sugar Dinner) 15 th DATAGRO International Conference on Sugar & Ethanol Grand Hyatt São Paulo, Brazil 29
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