Associated British Foods offered some hope of an end to the European
sugar price slump, but only after values have fallen lower than previously
expected, and provoked continued concerns at rival Suedzucker.
Associated British Foods, whose sugar empire stretches from
the UK to South Africa, said there were signs of an end to the drop in European
sugar prices, which are being undermined by the removal of EU production
quotas, besides by weak world markets.
"Early customer negotiations have commented for the 2014-15
UK contract round, and while prices remain weak, early indications are that
they are now stabilising," Associated British Foods said.
The comment offered a rare glimmer of hope for producers in a
market which has already seen values fall 21% year on year to E574 a tonne April,
the lowest since September 2011, according to official data – declines which
have badly hurt groups such as ABF.
'Simply too much
However, ABF acknowledged that values were stabilising
around levels "lower than we previously expected", an observation backed by
analysts at Credit Suisse, which said forward values for the 2014-15 year,
beginning in October, were trading at E450m-500m a tonne.
"Early [price] indications for the new year are comfortably
lower than we expected," by about E50 a tonne, the bank said.
"There is simply too much sugar in Europe - stocks are 1m
tonnes higher - and competition is fierce," it said, restating a "neutral"
rating on ABF shares, and a price target of 3000p, even though the food group
on Thursday also raised its estimate for full-year earnings.
ABF, citing "better profit progress" at its non-sugar operations,
including at its Primark clothes retail chain, said that its earnings per share
for the year to September would beat last year's 98.9p, beating the in-line
performance it had previously guided to.
Separately, German-based rival Suedzucker, Europe's largest sugar
producer, revealed a 71% drop to E45% in operating profits at its sugar
operations in the March-to-May quarter, on revenues down 16.7% at E862m.
It voiced a more downbeat outlook on sugar, saying its sugar
division will suffer a "significant drop in revenues" for the year to February
2015 because of the market conditions that it termed as "increasingly difficult".
"We also expect a significant decline in operating profit,
mainly due to the increasing deterioration of the economic environment in the
EU sugar market," Suedzucker said, adding that it was "reviewing cost
structures" in its sugar division.
Nonetheless, Suedzucker shares rose 3.4% to E15.41 in
Frankfurt, with the group's overall operating profits for the quarter, while
down 54% at E106.2m, beating expectations for a result of E79m.
Associated British Foods shares fell 2.6% to 2921p in London.
The prospect of an end, from October 2017, in EU output
quotas has prompted a pre-emptive response from producers, which sugar merchant
Czarnikow highlighted on Wednesday "are already battling for market share ahead
of quotas being removed".
Czarnikow has forecast a rise of nearly 5% to 17.6m tonnes
in EU sugar production in 2014-15.
Agricultural commodities trading house ED&F Man said
last week that its initial estimate for output of 17.6m tonnes "may see some considerable