Latin American Sugar Producers Hurt by Surplus, Weather

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Researched by Industrial Info Resources Latin America (Cordoba, Argentina)--Surpluses and adverse weather have affected the global sugar market its capital expenditures. Surpluses among major sugar producers, such as Brazil, Thailand and India, caused the global sugar price to hit a three-year low of 17.70 cents per pound on January 28.

Brazil is a top sugar producer in Latin America, but the El Niño weather phenomenon has hurt the industry this year. Drought negatively affected the first half of the year, and current forecasts show above-normal rainfall during the second half, which would reduce sugar output during the crushing season.

International sugar prices have steadied, but profit margins within the industry are too low to generate large investments in the sector. Ethanol production had been a way out for some facilities in the past, but the current federal government's fuel price policy is detrimental to the industry. About 10% of the sugar mills and ethanol plants in Brazil have decided not to crush this year and are selling sugarcane to other facilities.

Market recovery will focus on plants that are financially healthy. Recuperation will be slower than in previous years, but new plant acquisitions, joint ventures and firm consolidations are likely to occur. Investments for 2014 and 2015 will focus on improving efficiency, minor equipment additions, performance upgrades and maintenance.

Industrial Info is tracking nearly 400 Brazilian capital projects that are worth $10 billion. About 46%of the projects have been postponed to 2016 and onward, once sugar prices have increased and market conditions have improved. Maintenance expenditures are valued at $720 million for both sugar mills and ethanol plants.

Mexico is still competitive in international markets, with 175 projects under development that total $2 billion in value. As the sugar industry is also a large energy user (most sugar mills produce their own electricity to meet on-site needs), bagasse cogeneration is being strongly promoted in the country. New investments will be made during the coming years to replace old technologies and increase generation capacity to export electricity to the grid. Major cogeneration projects include unit additions and boiler installations. Minor capital projects at plants involve modernizing and replacing equipment rather than on increasing crushing, or sugar and ethanol production capacities.

Central America's sugar industry has seen substantial growth during the last decade due to the implementation of new technology and agricultural practices. The industry in Central America was not impacted as much by adverse weather and sugar prices. Investments are estimated at $2.1 billion, including sugar and power-unit expansions. Expenditures are concentrated on the purchase of new production technology, which require lower maintenance and repairs, which will allow Central America to increase sugar production. Guatemala, El Salvador and Costa Rica are among the countries set for robust development.

Industrial Info will be present at the world's largest sugarcane energy event, Fenasucro, in Sertaozinho, Brazil, August 26-29. Please visit us at Booth BJ33 to meet our staff and learn how Industrial Info can provide valuable insight and information.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.