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Corn syrup making up for ethanol hit, says Tate

Tate & Lyle, reporting flat profits for the first half of its financial year, said that a strong market for corn-based sweeteners was more than making up for the hit to its profits from depressed ethanol margins.

The sweeteners and starches group said that market conditions for making ethanol were "challenging", and expected to remain so, hurt by high prices of corn, the feedstock for its US bioethanol plants.

The comments come the day after official data showed US ethanol production falling 25,000 barrels per day last week to 809,000 barrels per day, the lowest since July, and amid margins termed "anaemic" by broker RJ O'Brien.

On Monday, ethanol group Biofuel Energy Corp said that it was to idle a plant in Minnesota producing 115m gallons of the biofuel a year.

A pull back in corn prices from last month's record highs "hasn't completely alleviated the issue of poor profit margins", Brian Henry at broker Benson Quinn Commodities said.

'Still cheaper than sugar'

However, Tate & Lyle, who operations extend into food ingredients and industrial starch, said that its own profits from bulk products markets were being supported by "a strong performance by liquid sweeteners", such as high fructose corn syrup, in both the US and Europe.

And the group said it expected "the firm demand for liquid sweeteners in the US to continue", although margins in Europe may come under some pressure.

Prices of rival sweetener sugar have fallen in the US, as elsewhere helped by a revival in hopes for Brazilian production, and in June dropped below $1,000 a tonne ex-mill for the first time since 2009.

However, high fructose corn syrup, or HFCS, is "still cheaper", a Tate spokesman told Agrimoney.com.

Furthermore, while US HFCS volumes are in a long-term structural decline, as consumers switch to diet versions of carbonated drinks or to fruit juices or water, the drop is being offset by growth in the Mexican market.

According to the International Sugar Organization, HFCS consumption in Mexico, which imports three-quarters of its supplies from the US, will rise by 70,000 tonnes to 1.75m tonnes this year.

Price hikes ahead?

Tate, saying that it expected "to make progress" in group results in the year to March, added that its performance in sweeteners the end of the period would be determined by the annual pricing round of HFCS with users, largely drinks giants such as Coca-Cola and PepsiCo.

The ISO forecast that producers of the sweetener, which also include Archer Daniels Midland and Cargill, "are likely to announce much higher [HFCS] prices for 2013 over 2012, by as much as 25-30% directly as a consequence of far higher corn prices".

In the City, Panmure Gordon restated a "hold" recommendation on Tate & Lyle shares, saying that "broadly flat operating profits for the half will not be a bad result".

Tate & Lyle shares closed 2.4% higher at 670p in London.

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