BRAZIL: Sugar mix seen falling to lowest level since 2015/16 at 41.5%
Published: 04/03/2018, 7:39:20 AM
The amount of sugarcane to be directed to sugar production in Brazil's key Centre-South region in the 2018/19 season is expected to reach 41.5%, an S&P Global Platts survey of analysts found Thursday, according to Platts.
This would be the lowest level since 2015/16 when the mix reached 40.64%, according to the survey. It would also be down 5.1 percentage points from the S&P Global Platts Analytics final estimates for the 2017/18 season.
The 2018/19 sugarcane season will officially start April 1 in the Centre-South, the world's largest sugarcane- and sugar-producing region.
Industry association UNICA is set to release its official estimate figures for the region early next week.
The steep decline is a response to higher ethanol prices, as ethanol turned more profitable than sugar in early August 2017 for the first time since the first quarter of 2016, according to Platts data.
The premium of hydrous ethanol over sugar has reached a record high of 523 points, or US$115.27/tonne on March 13, the highest since Platts started assessing the premium.
According to estimates from Platts Analytics, the forward curves for sugar and ethanol show that hydrous ethanol continues to pay about 200-400 points more than sugar all along the curve and up to December 2018.
"Following a constant greater profitability of ethanol versus sugar, which is now massive, and given the next crop is under-hedged, we have decided to work with sugar mix expectations at 42%," said Claudiu Covrig, senior analyst for Platts Analytics in an email communication.
"However, estimating the sugar mix this season remains difficult as any consistent rally in sugar prices (should specs decide to cover their shorts), possibly lower gasoline prices at the pump, and a weaker Real (as we are in an election year and political scandals could weaken the Brazilian currency) could swing the scales back in sugar's favor," Covrig added.
Analysts expect the amount of sugarcane crushed in 2018/19 to total 583.8 million tonnes, down 1.7% on the year from final Platts estimates for the previous season and the lowest since the 2014/15 season when 573.4 million tonnes were crushed.
The consensus for the cane's total recoverable sugar (ATR) in the next season was 134.3 kg/tonne, with individual forecasts ranging from 133.5-134.6 kg/tonne, a decrease from the 136.8 kg/tonne ATR estimated by Platts Analytics for the 2017/18 season.
According to the average of analysts' expectations, the volume of sugar output should decrease to 31.05 million tonnes, down 14% compared to final Platts estimates for 2017/18 and the lowest since 2015/16 when 31.22 million tonnes were produced.
"Despite the drop in CS Brazil's sugar output, our estimates of the global surpluses for 2018/19 are increasing to 11.05 million mtrv, up from 9.24 million mtrv in 2017/18. This is mainly due to rising production in both India and Thailand more than offsetting any potential drop in production from CS Brazil," pointed Covrig.
Overall cumulative ethanol production was expected to be 6.7% higher compared with the past season at 27.13 billion litres, according to the average of analysts' estimates.
Considering the average poll results for ethanol production, an increase in the share of hydrous ethanol is expected, increasing to 61% of the total ethanol produced at 16.5 billion litres. This is up 10% from the final 2017/18 estimates for hydrous production. Hydrous output is expected to represent 59% of the total ethanol produced in the 2017/18 season.
The stronger output is a response to stronger consumption rates that have been increasing since the second half of 2017, following a change in state oil company Petrobras pricing policy which is now following international prices and federal taxes added last year.
The higher demand has translated into rising hydrous prices, which reached a record high of BRL2,320 (US$700.7)/cu m on an ex-mill Ribeirao Preto basis in the March 13-16 period, the highest since the Platts assessment was launched April 2014.