| SAO PAULO
SAO PAULO Feb 14 Weak sugar prices, government
fuel price controls and a year of frost and drought are forcing
Brazil's listed sugar and ethanol companies to cut costs and
consider layoffs, as earnings reports this week have shown.
Local sugar and ethanol units controlled by Louis Dreyfus
, Cosan, Bunge, Tereos
and others see the cuts as essential, to stem losses until sugar
prices recover from four-year lows and they can limit or reverse
the negative impact of government policies on their
Takeovers and other alternatives to consolidate the industry
are tough because of bleak market conditions and debt taken on
during a decade of expansion. Offers from newcomers in Asia and
Europe are often too low to let potential sellers recoup their
Even the weather is not cooperating. Severe drought has
already led analysts to cut their outlook for the harvest that
begins in the coming weeks.
And there are no clear signs of imminent relief.
COMPANIES' LOSSES GROWING
Brazil's biggest sugar and ethanol milling group, Raizen
Energia SA expects a loss for the quarter ending Dec. 31, of
115.4 million reais ($48 million), compared with a profit of
164.3 million reais in the year-ago period. Raizen Energia is
part of a joint venture between Brasil's Cosan SA and
Royal-Dutch Shell, the Anglo-Dutch oil company.
In addition to smaller sugar sales volumes, Raizen Energia
blamed a 5 percent decline in the value of Brazil's real against
the dollar for the bulk of the losses.
The company said it continues to make new investments in
technology to improve efficiency, such as cellulosic ethanol
production allowing the company to extract sugars from more of
each kilogram of cane harvested. However, investments have
slowed in the expansion of cane production, one of the most
capital intensive aspects of the business.
Brazil's second biggest milling group, Biosev,
the sugar and ethanol spinoff of French commodities firm Louis
Dreyfus, on Thursday reported a loss of 203.7 million reais in
the last three months of 2013, 24 percent more than a year
earlier. Last July frost hurt cane fields supplying some of the
company's 12 mills in Mato Grosso do Sul state and its cane
crushing, sugar and ethanol output suffered as a result.
The 6 percent slide in sugar prices in the October-December
quarter made Biosev's business challenging, the company said.
Biosev's capital spending in the nine months through
December fell 21 percent to 681 million reais from a year ago.
White Plains-based Bunge Ltd said on Thursday that it
had contracted investment bank Morgan Stanley to review options
for its money-losing sugar and ethanol milling business in
Brazil, which the company bought for $2 billion in 2009 and may
now be prepared to sell.
Despite difficulties, some millers turned mild profits.
French milling group Tereos International SA,
which controls Grupo Guarani SA, reported a profit of
19 million reais, down 10 percent from a year ago, in part due
to a 20 percent increase in tax liabilities. The company also
cut investments 24 percent in nine months to 588 million reais.
São Martinho SA was the only of the major groups
to post consistently steady profits this season, including net
income of 128.6 million reais in the quarter ending Dec. 31,
according to a Thursday filing.