Sao Martinho dismissed as "not very probable" an Indian
sugar consumption slowdown, and flagged that prices had fallen below costs even
for efficient producers, as it expanded on its forecast of a rebound in sugar
The Brazilian cane crusher - questioned on a forecast
earlier this week of a recovery in sugar prices from levels which hit a 15-month
low in New York's futures market of 12.78 cents a pound on Tuesday – blamed the
market weakness largely on reduced expectations for Indian demand.
"What we see now is that, on the demand side… new from India
that India would be consuming less sugar," said Felipe Vicchiato, the Sao Martinho
'Not very probable'
However, he said that while it was "difficult to evaluate" such
expectations for India, the world's top sugar consuming country, "it is not
very probable for this to be happening.
"The Indian population continues to be very poor and sugar
is still the basis for their food and their meals," Mr Vicchiato told investors.
Indeed, the group saw "no rationale whatsoever to believe"
in dent to sugar demand in less developed countries, although he acknowledged
the some efforts to cut sugar consumption in more developed nations, where the
sweetener has become increasingly targeted by health campaigners.
The comments follow a downgrade last month of 750,000
tonnes, to 25.15m tonnes, in the International Sugar Organization's estimate of
Indian sugar consumption in 2016-17 – below the 26.0m tonnes used last season.
Last week, Sucden Financial flagged a "slowdown" in Indian
demand for sugar in 2016-17, but termed the dynamic "temporary".
Below production cost
Mr Vicchiato also flagged the sustainability of current
sugar prices given that they area below output costs.
"My cost to produce sugar at Sao Martinho is something close
to 13.5 cents a pound," and the group was a "very efficient" producer.
Current prices "should have an impact of many sugar
producing countries in terms of planting sugar beet or sugarcane", dissuading
growers from some sowings, and so fuelling the prospect of a "rebound in prices
in the 2018-19 year".
Sugar should be priced at "at least" 16 cents a pound to account
for the drop in inventories sustained during successive seasons of output
deficit in 2015-16 and 2016-17, but were being depressed also by large
Brazilian exports and the knock-on effects of weak energy prices.
And "in two or three crop years, we believe that it will go
back to 20 cents a pound with a certain degree of comfort", given the dent to
output prospects from the current market weakness.
Mr Vicchiato said that the group's price forecasts were
reflected in its hedging strategy which, while seeing 50% of expected 2017-18
output already priced, was heavily weighted towards fixing values on short-term
"May and July, I would say that they are 90% hedged in what
has to be hedged.
"And we are on a little bit lighter in terms of hedging
years in March 2018 and October , because we believe that the price could
return at the end of the crop year."
"There has been no drastic change in supply and demand for
the sugar product. So we understand that the sugar should rebound at the end of
the crop year."