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Sugar
India
Cane production estimates in Brazil moving down. The last two months have seen
reduction of cane production estimates in the center-south (CS) region of Brazil from
levels of ~570 mn tons in June 2011 to ~500 mn tons as of now. While the resultant
high prices of raw sugar is positive in the medium term, it also opens up risks of
government (Brazil) interventions in the sector. As per current estimates, cane
production in FY2012E would be ~10% lower than last year, which could mean a
severe (more than last year) shortage of ethanol for fuel as we approach the end of
season in March 2012. In our view, prices could spike to levels higher than last year
which might force the government to intervene by imposing regulations to discourage
the production of sugar which could be negative for the sector
Brazil – cane production estimates for FY2012 (March-ending) revised downwards
The last two months have seen reduction of cane production estimates for the center-south (CS)
region of Brazil from levels of ~570 mn tons as of June 2011. The key downgrades were:
2nd half of August 2011: Canaplan (Brazilian consultancy firm) revised its estimates (earlier
also at the lower end of the range) for cane production and sugar production in the CS region
of Brazil to 476 mn tons and 28 mn tons, respectively. Just before this, UNICA had reduced its
estimates for CS cane production to 510 mn tons.
2nd half of July 2011: Kingsman lowered its forecast for the CS sugarcane harvest to 525 mn
tons from 560 mn tons earlier. Also, sugar production estimates for the CS region were revised
downwards to 31.8 mn tons from 33.8 mn tons earlier. Around the same time, UNICA revised
its cane production estimates to 533 mn tons (CS).
Assuming CS cane production at 500 mn tons for FY2012E (March-ending) would mean 10%
decline from last year’s cane production. While cane production estimates have been reduced by
~12% since the beginning of the year, estimates for production of sugar have only been reduced
by ~5% to 31.6 mn tons (UNICA estimates for CS). As it is more profitable to manufacture sugar
rather than ethanol, mills would maximize production of sugar over ethanol and hence, decline in
ethanol production would be more than the decline in the cane production. As per UNICA, 48%
of sugarcane would be converted into sugar in FY2012E (March-ending) versus ~45% in the
previous year.
Sugar prices would remain strong in FY2012E (March-ending)
The production downgrades highlighted above should keep global raw sugar prices at elevated
levels, at least till the start of crushing season in the northern hemisphere October 2011 onwards.
In that case, Renuka Sugars should be able to sustain realizations of US cents25 per lbs for the
current Brazilian sugar year (April-March). Also, the company is taking advantage of the current
high prices to hedge next year’s production. As per the management, it has already hedged 40%
of next year’s production at a floor price of US cents24 per lbs and cap price of US cents30 per lbs.
We are assuming prices of raw sugar at US cents23 per lbs in FY2012E and FY2013E in our
earning estimates. In case prices sustain the current levels, it could mean an upside to our
estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sugar
India
Cane production estimates in Brazil moving down. The last two months have seen
reduction of cane production estimates in the center-south (CS) region of Brazil from
levels of ~570 mn tons in June 2011 to ~500 mn tons as of now. While the resultant
high prices of raw sugar is positive in the medium term, it also opens up risks of
government (Brazil) interventions in the sector. As per current estimates, cane
production in FY2012E would be ~10% lower than last year, which could mean a
severe (more than last year) shortage of ethanol for fuel as we approach the end of
season in March 2012. In our view, prices could spike to levels higher than last year
which might force the government to intervene by imposing regulations to discourage
the production of sugar which could be negative for the sector
Brazil – cane production estimates for FY2012 (March-ending) revised downwards
The last two months have seen reduction of cane production estimates for the center-south (CS)
region of Brazil from levels of ~570 mn tons as of June 2011. The key downgrades were:
2nd half of August 2011: Canaplan (Brazilian consultancy firm) revised its estimates (earlier
also at the lower end of the range) for cane production and sugar production in the CS region
of Brazil to 476 mn tons and 28 mn tons, respectively. Just before this, UNICA had reduced its
estimates for CS cane production to 510 mn tons.
2nd half of July 2011: Kingsman lowered its forecast for the CS sugarcane harvest to 525 mn
tons from 560 mn tons earlier. Also, sugar production estimates for the CS region were revised
downwards to 31.8 mn tons from 33.8 mn tons earlier. Around the same time, UNICA revised
its cane production estimates to 533 mn tons (CS).
Assuming CS cane production at 500 mn tons for FY2012E (March-ending) would mean 10%
decline from last year’s cane production. While cane production estimates have been reduced by
~12% since the beginning of the year, estimates for production of sugar have only been reduced
by ~5% to 31.6 mn tons (UNICA estimates for CS). As it is more profitable to manufacture sugar
rather than ethanol, mills would maximize production of sugar over ethanol and hence, decline in
ethanol production would be more than the decline in the cane production. As per UNICA, 48%
of sugarcane would be converted into sugar in FY2012E (March-ending) versus ~45% in the
previous year.
Sugar prices would remain strong in FY2012E (March-ending)
The production downgrades highlighted above should keep global raw sugar prices at elevated
levels, at least till the start of crushing season in the northern hemisphere October 2011 onwards.
In that case, Renuka Sugars should be able to sustain realizations of US cents25 per lbs for the
current Brazilian sugar year (April-March). Also, the company is taking advantage of the current
high prices to hedge next year’s production. As per the management, it has already hedged 40%
of next year’s production at a floor price of US cents24 per lbs and cap price of US cents30 per lbs.
We are assuming prices of raw sugar at US cents23 per lbs in FY2012E and FY2013E in our
earning estimates. In case prices sustain the current levels, it could mean an upside to our
estimates.
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