DUBAI: Commodities trading firm Louis Dreyfus expects faster switching between sugar and ethanol production in Brazil, with more flexible mills leading to "dramatic" price-driven shifts.
"Usually you have to see sugar playing a premium over ethanol or the opposite for a period of time before you start seeing the switch, " Enrico Biancheri, head of sugar trading worldwide at Louis Dreyfus, which has a controlling interest in Brazilian sugar and ethanol maker Biosev SA, said.
Depressed sugar prices have led Brazilian companies to increase their capacity to produce ethanol, with many mills able to switch between using cane to produce either sugar or biofuel ethanol depending on which is more profitable.
"Recently the industry is learning to become more pragmatic and more economics driven. The low sugar price is a driver by itself so the mills have to be more flexible in order to generate more," Biancheri told a Dubai conference on Monday.
Biancheri also said he expected consolidation within the Brazilian milling industry to continue with the best performers buying up assets from those that are financially stressed.
Meanwhile Gareth Griffiths, chief executive of Alvean, said prices were "at the tipping point" for sugar and ethanol.
Alvean, the largest sugar trader globally, is expecting a slight sugar surplus for 2019-2020 of around 2 million tonnes.
Analysts have been expecting a small sugar deficit for the period after years of surplus that have depressed prices.
This view was supported by Sucden general manager Thierry Songeur who predicted a slight deficit by the end of 2019-2020, with India the unknown quantity.
India could export as much as 5 million tonnes to the market this year and a switch to more ethanol production will not take place in the short term to get rid of its surplus, he said.
"Ethanol will not be your remedy in the short term."
Biancheri also said anticipation about the potential for ethanol in India had been going on for "quite some time" but the steps needed were not being taken quickly enough.
"It will be more of a mid to long term story," he said.
Comments
Comments are closed for this article.