Suedzucker, unveiling a leap in profits, said it retained a “positive” outlook on the world sugar market, despite increased expectations for the world sugar surplus in newly-started 2022-23.
The German-based group, which is Europe’s largest sugar producer, acknowledged that expectations had increased for the world surplus in the sweetener expected for the new season, as started this month.
It quoted data from IHS Market foreseeing output exceeding demand by 2.9m tonnes, up from a forecast three months ago of a 900,000-tonne surplus, factoring in a “significant production increase in Brazil and Thailand”.
Separately, a briefing overnight from the US Department of Agriculture’s Bangkok bureau restated an estimate of Thai sugar output hitting a four-year high of 10.50m tonnes this season, backed by above-average rains in main cane-growing areas.
Exports were seen higher still, at a record 11.0m tonnes, the bureau noting that “traders expect strong demand for Thai sugar in South East Asia”, after a spree in sales to Indonesia, and with Thailand having a back-up of inventories to draw down.
‘Low world sugar stocks’
However, Suedzucker added that after three successive seasons to 2021-22 of world sugar inventory drawdown, totalling 8.3m tonnes, a “low stock level remains”.
“The ratio of inventories to consumption remains unchanged at a low level,” of 38.2% expected for the close of 2022-23, the group said, if representing an uptick of 1.3 points year on year.
For the company’s key European sugar market, the group highlighted European Commission forecasts for a further decrease in output this season, of 800,000 tonnes to 16.4m tonnes, reflecting a 4% decline in sowings and drought damage to yields.
“Beet yields are expected to be below average as a result of the persistent, widespread drought in almost all of Europe,” a hit which will only be partially compensated in terms of the boost to crop sugar content from “the many hours of sunshine”.
The dip in sugar output “means that the EU can be expected to remain a net importer of sugar”, signalling support to prices and that “Suedzucker will enjoy a positive market environment”.
Price rises vs cost increases
The group stood by expectations of the sugar division achieving an operating profit of up to E100m for the year to the end if February, compared with a E21m loss a year before, as firm EU sugar prices allow the group to pass on growing costs.
“Our predictions indicate that we will be able to turn the already steep increase in the EU spot price into markedly improved customer contracts beginning in October 2022.
“However, costs have risen sharply since the second quarter due to the lower harvest expectations.”
At a group level, Suedzucker restated expectations of a group operating profit of E450m-550m, although the revenue estimate was raised to E9.4bn-9.8bn, from E8.9bn-9.3bn, on increased expectations for its fruit division, which has raised prices for the likes of juice concentrates.
Canny hedging
For the June-to-August half, the group reported operating up 80% to E153m, on revenues up 27% at E2.35bn.
Sugar division operating profit doubled to $14m, on revenues up 12.6% at E715m, although the CropEnergies ethanol business, which reported its own results on Wednesday, led the improvement in group results, with operating profit quadrupling to E93m.
CropEnergies benefited from higher ethanol prices and sales volumes, at a time when its costs were curtailed thanks to hedges on raw materials, such as grain, taken out before the Ukraine war sent values soaring.
Suedzucker shares lost early gains to stand 2.9% lower at E12.28 in morning deals in Frankfurt.
