Südzucker, the largest sugar refinery in Europe, suffers from the massive decline in sugar prices in recent months and plans to increase its exports to compensate for losses.
The drastic drop in sugar prices to a historically low level can undoubtedly only be compensated for by lower production costs and higher sales volumes, the company said today in a balance sheet press release.
In September 2017, the European Union revised its sugar regime and abolished the quota system and guaranteed prices. All export restrictions have also disappeared and prices in the EU now correspond to world market prices. In this way, the worst-case scenario occurred, namely that European sugar production is additionally burdening the already oversupplied world market.
Sugar production in the world is rising faster than consumption. In addition, the exchange rate of the euro against the US dollar is disadvantageous for the providers from the EU, so that the sugar price development currently knows only one direction: down!
Südzucker believes that at the current price level hardly a sugar beet farmer makes profits. An adjustment in supply and price is only a matter of time.
Sugar prices have fallen by almost 40% since the beginning of 2017. The prices of futures contracts fell to the lowest level in two and a half years, because the global offer is too large. During the current marketing period, which started in October 2017, both revenue for intra-EU sales and third-country exports has been steadily declining. This pushed Südzucker's annual result into the red.
The company confirmed its earlier forecast of a loss of 100 to 200 million euros for the operating business of this financial year. In the previous year, a profit of € 139 million was reported. In addition to the sugar business, Südzucker has large business units that do not process sugar - these are biofuels, pizzas and starch.
The end of EU sugar market quotas brought new challenges for the company and they are now trying to take advantage of them. This would have identified attractive markets in the Middle and Near East, North and West Africa, Eastern Europe and Central Asia.
In order to facilitate exports to third countries, Südzucker has leased large storage capacities in EU ports, as well as additional storage for packaged products and has leased special wagons for the transport of sugar.
Text: HANSA Derivatives Trading GmbH /
