LMC Brazil Impact on EU.ppt - Latest Oil, Energy & Metals · PDF file ·...
Transcript of LMC Brazil Impact on EU.ppt - Latest Oil, Energy & Metals · PDF file ·...
© 2016 LMC International. All rights reserved. www.lmc.co.uk
Brazil market evolution and its
impact on EU firms
Martin Todd, Kingsman EU Sugar Seminar, 14-15 April 2016
Table of Contents
How things looked when quota abolition was announced
How quickly things can change!
What next?
Conclusions
How things looked when abolition of
quotas was confirmed
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
World and EU white sugar prices R$/US$ exchange rate White sugar yields per hectare
At first, the prospects for exports looked excellent
The European Commission confirmed in mid-2013 that quotas would be lifted in 2017.
At that time, the world market looked very attractive and EU producers felt confident about the future:
• World white sugar prices were falling but attractive (€400/T); domestic prices we very high (€750/T).
• The Brazilian real was strong (R$2/US$ or R$1.5/US$), inflating the industry’s costs.
• White sugar yields in the EU were well ahead of those in C/S Brazil.
4
0 2 4 6 8 10 12 14
C/S Brazil
EU-28
France
Tonnes per hectare
0
200
400
600
800
Jul-06 Jul-08 Jul-10 Jul-12
€p
er
ton
ne
World White EU Reported
1.0
1.5
2.0
2.5
Jul-06 Jul-08 Jul-10 Jul-12
R$ p
er
US
$ &
€
R$/US$ R$/€
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
Brazil’s full cost of raw sugar production (FOB, including ROC) vs. No.11
A strong real had boosted Brazil's costs to 20 c/lb FOB
5
0
15
30
45
60
75
90
105
120
135
150
165
180
195
0
2
4
6
8
10
12
14
16
18
20
22
24
26
00/01 02/03 04/05 06/07 08/09 10/11 12/13
Re
al E
xch
an
ge
Ra
te (1
995=
100)P
rod
ucti
on
Co
st/R
aw
Su
ga
r P
rice
(U
Sce
nts
/lb
)
Ex factory costs Fobbing costs
World raw sugar price Real exchange rate
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
White sugar yields in C/S Brazil and the EU (EU-28 and France)
Brazil's sugar yields per hectare were falling
6
6
8
10
12
14
16
1996 1998 2000 2002 2004 2006 2008 2010 2012
To
nn
e p
er
he
cta
re
C/S Brazil EU-28 France
How quickly things can change!
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
World and EU white sugar prices R$/US$ exchange rate White sugar yields per hectare
The picture for EU producers quickly started to deteriorate
Soon after the EC’s announcement, market developments began to undermine producers’ confidence:
• World white sugar prices fell to unattractive levels (<€400/T).
• Domestic prices collapsed, wiping out producers’ profits.
• The Brazilian real also collapsed, providing a huge boost to the industry’s cost competitiveness and weighing heavily on world sugar prices.
The good news is that white sugar yields in the EU remain well ahead of C/S Brazil.
8
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jul-06 Jul-08 Jul-10 Jul-12 Jul-14
R$ p
er
US
$ &
€
R$/US$ R$/€
0
200
400
600
800
Jul-06 Jul-08 Jul-10 Jul-12 Jul-14
€p
er
ton
ne
World White EU Reported
0 2 4 6 8 10 12 14
C/S Brazil
EU-28
France
Tonnes per hectare
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
Brazil’s full cost of raw sugar production (FOB, including ROC) vs. No.11
The weak real has dramatically reduced Brazil's full costs
9
0
15
30
45
60
75
90
105
120
135
150
165
180
195
0
2
4
6
8
10
12
14
16
18
20
22
24
26
00/01 04/05 08/09 12/13 15/16 @R$4/US$
Re
al E
xch
an
ge
Ra
te (1
995=
100)P
rod
ucti
on
Co
st/R
aw
Su
ga
r P
rice
(U
Sce
nts
/lb
)
Ex factory costs Fobbing costs
World raw sugar price Real exchange rate
What next?
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
The global crop cycle is at a turning point … surpluses have turned into a deficit, which is growing as the extent of the El Niño weather impact is becoming clearer.
EU producers are hoping 2017 will be a favourable moment
11
-9
-6
-3
0
3
6
9
12
15
150
155
160
165
170
175
180
185
190
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
Su
rplu
s/De
ficit (m
illion
ton
ne
s, rv)
Pro
du
cti
on
/Co
nsu
mp
tio
n (
mil
lio
n to
nn
es,
rv)
Surplus/Deficit World Production World Consumption
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
Meanwhile, expansion of the Brazilian industry has stalled … mills have been closing and sugar output has stopped rising.
Will the world market need the EU?
Greenfield projects vs. mill closures in Brazil Sugar and ethanol production (all Brazil)
EU producers are hoping 2017 will be a favourable moment
12
0
7
14
21
28
35
0
10
20
30
40
50
90/91 95/96 00/01 05/06 10/11 15/16
Eth
an
ol (b
illion
c
ub
ic m
etre
s, te
l qu
el)
Su
ga
r (m
illio
n t
on
ne
s,
tel
qu
el)
Sugar Ethanol
-15
-10
-5
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2014 2015
No
. o
f g
ree
nfi
eld
s/m
ill
clo
su
res
Greenfields Mill closures
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
Beet area in the EU has been falling for a long time, because of fixed quotas and rising yields.
There is no shortage of area at the right price, although factories may have to look further afield in some countries.
Area under beet in the EU-28 Change in area by member state since 2000
Growers can increase beet area
13
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2000/01 2005/06 2010/11 2015/16
Millio
n h
ec
tare
s
-200 -150 -100 -50 0 50
Italy
Poland
Germany
Spain
Hungary
UK
Greece
Netherlands
Belgium
Denmark
Sweden
Finland
Lithuania
Slovakia
Romania
France
C Rep
Croatia
Austria
'000 hectares
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
In 2014/15, the industry showed it has the potential to produce more than 19 million tonnes.
And some producers can expand even further.
EU-28 sugar production: quota and total Expansion potential of EU processors
Processors have the installed capacity to increase as well
14
5
8
11
14
17
20
06/07 08/09 10/11 12/13 14/15
Millio
n t
on
ne
s,
wh
ite
va
lue
Quota Over-Quota
0 1 2 3 4 5 6
FranceGermany
PolandNetherlands
United KingdomSpain
BelgiumCzech Republic
ItalyDenmark
AustriaSwedenCroatia
RomaniaSlovakia
LithuaniaHungaryFinlandGreece
Million tonnes, white value
Production (2013-2015) Expansion Potential
Conclusions
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
• A few years ago, the outlook for the beet industry was very promising.
• However, Brazil has made its presence felt via its weak currency. Low world sugar prices combined with an over-supplied EU sugar market to depress EU prices and producers’ profits.
• The outlook is uncertain, although the global production cycle points towards firmer sugar prices in the short-to-medium term.
• Longer term, the world needs more sugar and Brazil’s expansion has stalled, for now at least.
• This outlook is promising for EU beet growers and processors, but refiners would prefer low world sugar prices.
• The volatile situation in Brazil makes it hard to plan far ahead. Meanwhile, planting decisions for the 2017 crop must be made within the next 3-6 months.
Eyes will remain on Brazil
16
Thank You
© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
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© 2016 LMC International. All rights reserved. Kingsman EU Sugar Seminar, April 2016
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