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Caution over 2016 tempers cheer over Suedzucker upgrade

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A caution of a "significant reduction" in ethanol prices next year tempered enthusiasm for upgrades by Suedzucker and its CropEnergies subsidiry to profits hopes, pulling shares in both groups below multi-month highs.

Shares in German-based Suedzucker, Europe's largest sugar refiner, rose 3.2% in early deals in Frankfurt to touch a 19-month high of E19.00 after the group lifted to E200m-240m, from E180m-230m, its forecast for earnings in the year to the end of February.

The upgrade – the second in two months, and backed by an increase of E100m to E6.3bn-6.5bn in full-year revenue expectations – reflected in part reduced fears for the decline in sugar profits this year, following an improvement in European Union, and world, prices.

The estimate for losses in sugar was trimmed to E60m-80m, from a previous range of E50m-100m.

'Beneficial price development'

However, the biggest contributor was from ethanol, and the contribution from the CropEnergies business of which Suedzucker owns 76%.

CropEnergies' operating profits for the year to the end of February will reach E70m-90m, ahead of the E50m-70m previously forecast, "following the beneficial ethanol price development to date", Suedzucker said.

CropEnergies itself said that the key reason for the improvement was that "spot prices for bioethanol… are significantly above the originally expected forward prices", allowing the group to realise values some 10% higher than the forward market had suggested.

"This positive development" will be reflected in results for the September-to-November period, which "will be significantly higher than the previous year's".

'Significant price reduction'

European ethanol prices have averaged nearly E60 per cubic metre higher so far this year than a year before, according to Platts, boosted by the dent to supplies presented by weaker imports and the shutdown of CropEnergies' Ensus biofuel plant in the UK.

Weaker gasoline prices have also encouraged consumption of fuel overall, and boosted the need for ethanol use to meet mandatory blend rates.

However, CropEnergies cautioned of worse market conditions heading into its 2016-17 financial year, saying that "forward prices for bioethanol in Europe… show a significant price reduction".

The implication was the prospect of a retreat in its operating profits for 2016-17 to E30m.

While the group said that, considering the experience of this year in spot prices beating expectations, an operating profit of E70m was "possible" in 2016-17, the figure would likely come in below the "excellent result" expected for the current year.

Market reaction

Shares in CropEnergies, which topped E6.00 in Frankfurt ion the last session for the first time in 22 months, tumbled 10% in early deals on Thursday before recovering to E5.95 in late morning trading, a drop of E5.95.

The decline pulled back shares in Suedzucker to E18.32, a drop of 0.5% on the day.

Separately, Agrana, the Australia-based sugar-to-starches group of which Suedzucker owns 82%, also lifted its outlook, citing improved expectations for ethanol and sugar, saying it now expected a "slight increase" in its operating profit for the year to the end of February.

Last month, it said it was "now projecting only a moderate instead of a significant decrease" in operating profits for the year.

Agrana shares stood 1.0% higher at E83.45 in Vienna.


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