A leading sugar banker cautioned over this year's drought in Brazil's Centre South region hitting cane crops in 2015-16 too as he forecast a wave of mergers among mills, their financial prospects further undermined by the crop downturn.
Alexandre Figliolino, director at Banco Itau BBA, said that the cane harvest in Brazil's Centre South, responsible for 90% of the domestic crop, could fall to 550m tonnes this season, following the drought which hit the region early in the year.
The forecast, down from 596m tonnes in 2013-14, compares with an estimate of 560m tonnes from Datagro and 575m tonnes from Kingsman, although Canaplan has a forecast of 540m tonnes.
And he cautioned that the crop next year would prove "just as likely lower" still thanks to the extent of the setback to cane crops which, even if replanted, typically take some 18 months before they can be harvested.
"What we are seeing is that sugar cane is disappearing, it is dying," he told the Sugar and Ethanol Summit in London.
He added that "to be renovated, [producers] need the right financial conditions".
Yet the sector faces fresh hardship thanks to this year's poor harvest, which looks like providing further hardship for mills which, to judge by analysis of its own portfolio of mills – accounting for more than 70% of Centre South cane production – has already seen its debts soar 10-fold since 2002-03.
Earnings before interest, tax, depreciation and amortisation (ebitda) among the mills looked set to fall to some R$11.3bn in 2014-15, from R$13.0bn last year.
Per tonne of cane, ebitda will drop to about R$28 from R$30.
Already, debts among its portfolio of mills had risen to R$44.0bn, from R$39.2bn at the end of 2012-13.
'Quadrant of death'
"The sector has much larger debt than at any time in its history," he said,
"That is not good when you are going through a crisis phase as we have now."
In fact, the sector was divided between mills with relatively strong balance sheets and profitability, and worse performers, of which 18, responsible for some 140m tonnes of cane output, fell into a "quadrant of death".
The "performance asymmetry" of Centre South sugar and ethanol groups "has widened" leading to a "scenario of further consolidation" between mills, 66 of which have closed since 2008.
Recent deals in the Centre South sector include the purchase by Sao Martinho of control of the Santa Cruz operation, while trading giant Bunge is attempting to sell its cane assets in the region.