(Reuters) - The CEO of Suedzucker, Europe’s largest sugar refiner, said on Thursday trading conditions remain tough but that he sees potential for a recovery in depressed global sugar prices.
“In the sugar segment we are currently operating in a difficult environment with worldwide production overcapacity and extremely low prices with which hardly any sugar producer can operate profitably,” CEO Wolfgang Heer told the annual meeting of Suedzucker shareholders.
“We are convinced that the situation will normalize after a transition phase and that the market and price structure will again reach a sustainable and profitable level.”
An essential pre-condition for this would be that overcapacity in sugar production is reduced in the current and next sugar season as expected by analysts, he said.
This would be achieved by an expected 2 percent increase in annual global sugar consumption, by closing production capacity or by a combination of these two trends, he said.
Suedzucker on July 12 reported a 49 percent drop in first-quarter operating profit reflecting the slump in sugar prices.
The European Union liberalized its sugar market in September 2017, ending its system of guaranteed minimum prices and protected production quotas. This gave producers freedom to expand and export more and linked EU prices to world markets.
But a worst-case scenario emerged, with European producers exposed to global prices which have fallen about 40 percent since early 2017 hurt by oversupply.
EU sugar prices have fallen by more than 12 percent since market deregulation.
“We cannot simply wait for an improvement in the sugar market,” Heer said.
“In such a market situation we will of course urgently have to optimize our cost structure in order to generate a relative competitive advantage for ourselves.”
“In addition, we see it as our task to reconsider and re-assess all conceivable options for the adaption of our previous strategy in the sugar segment.”
The company is continuing efforts to expand outside Europe, with its last financial year showing a sales increase in Asia of over 60 percent and a 30 percent increase in the Americas, he said.
Editing by Jason Neely