Suedzucker flagged the prospect of a “positive” world sugar market, which will allow it to push through “significant” price rises, as it confirmed its increased full-year earnings forecast.
The starch-to-ethanol giant, which is Europe’s top sugar producer, said that “the world market environment should remain positive” in 2022-23, as starts in October, given the prospect of “continued low inventory levels”.
Global sugar output will exceed demand in 2022-23 for the first time in four seasons, the group said, quoting HIS Markit expectations of a 600,000-tonne production surplus.
However, after the run-down in stocks from the series of deficit seasons, including a 1.5m-tonne shortfall expected for 2021-22, the market faces “continued low inventory levels”, Suedzucker said.
Indeed, 2022-23 inventories will be tighter than in the current season, when compared with consumption to form the stocks-to-use ratio much used as a pricing guide.
The ratio will ease to 37.6%, from this season’s 37.8% figure which the group termed “the lowest level for several years”.
In 2018-19, before the run of deficits, the ratio stood at 42.1%.
‘Further decline in beet’
The tightness will supported by dynamics in the group’s home European market, where the group reported a “further decline in beet cultivation” thanks to the enhanced competition lent to alternate crops by buoyant grains and oilseed markets.
The European Commission has forecast a 61,000-hectare decline to 1.34m hectares in European Union sugar beet sowings this year, with particularly marked falls in Poland and Romania.
“With average yields, sugar production in the EU is expected to be below the previous year’s level,” leaving the bloc a net sugar importer in 2022-23, Suedzucker said.
With net import situations supporting values – meaning they have to rise to attract supplies from the world market, rather than, as in a net export situation, falling to compete in trade – Suedzucker forecast a “a positive market environment” which would give it pricing power.
The market dynamics “should allow the drastic increase in raw material and energy costs to be passed on to the market through significant sugar price increases starting in October”.
Timely hedging
The comments came as the group reported a quadrupling to E132m in earnings for the March-to-May quarter, on revenues up 30% at E2.28bn.
Group operating profit tripled to E163m, helped by a return by the sugar division into the black, by E16m, after a E30m loss for the same quarter last year.
However, the CropEnergies ethanol unit made the greatest contribution to the growth, expanding operating profit near-sixfold to E87m, thanks to timely forward purchases of inputs such as grain, which the division makes the biofuel from.
CropEnergies’ “exceptionally good operating result was largely due to price hedges for raw materials and energy which were concluded before the start of the Ukraine war and the associated sharp rise in raw material and energy prices”, Suedzucker said.
‘Supply shortage’
Suedzucker confirmed last month’s upgrade to its guidance for full-year operating profit to E400m-500m, up from an initial forecast of E300m-400m, and the E332m achieved in the last financial year.
The profits rise will be supported by CropEnergies’ hedging success, and a return by the sugar division to full-year profit.
However, the operating result in the group’s fruit business will, thanks to the knock-on effects of the Ukraine war, “drop significantly” from the E52m achieved last year.
The fruit business has three plants in Ukraine, and one in Russia, with Suedzucker also cautioning of higher prices of berries such as blueberries and raspberries, “as lower harvest volumes in Ukraine will lead to a supply shortage”.
