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Tate & Lyle downplays threat from US-Mexico tensions

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Tate & Lyle – viewed by markets as particularly vulnerable to upsets prompted by President Donald Trump – downplayed the threat from trade tensions, terming "pretty manageable" the impact of Mexican levies on imports from the US.

The corn processor and sweeteners group – shares in which plunged 12% on November 9, the day after Mr Trump was elected US president – said that it was difficult to judge exactly how US-Mexico relations would pan out, given that there "will be a number of variables in play".

Although Mr Trump has pledged to renegotiate the Nafta free trade deal between the US, Canada and Mexico - the latter of which he has also irked by ordering the construction of a wall along the borer with the US - details of any demands have not been released.

However, Javed Ahmed, the Tate & Lyle chief executive, said that even if Mexico did end up slapping levy on imports from the US, from where the group ships corn-based sweeteners such as which fructose corn syrup (HFCS), the company would be able to ride the storm.

Two-way traffic

If Mexico implemented tariffs, Tate & Lyle's "export margins to Mexico would be reduced, but we would expect that to be at a pretty manageable level", Mr Ahmed said.

The Mexican market is particularly important to the group, and to rivals in corn processing such as Archer Daniels Midland and Cargill, as an importer of HFCS, with Tate & Lyle viewed by investors as notably vulnerable thanks to its relatively high dependence on the corn sweetener.

However, Mr Ahmed said that any analysis of the impact of any US-Mexican trade barriers on HFCS trade had to "look at the entire North American sweeteners landscape.

"Sugar is flowing the other way as well," with Mexico an exporter of sugar to the US.

'More positive business environment'

The comments echo those earlier in the week from ADM chief executive Juan Luciano, who flagged the potential for any trade war between the two countries to raise US demand for sweeteners, offsetting a loss in HFCS exports to Mexico.

"There are 2bn pounds of high fructose corn syrup going south into Mexico, but there are also 3bn pounds of sugar coming north into the US," Mr Luciano told investors.

"So you will argue that if that very permeable border were to stop, we would have an opportunity to reposition some of the high fructose corn syrup not going into Mexico to replace some of the sugar not coming into the US."

Mr Ahmed also backed ADM optimism of the potential for benefits from broader reforms implemented by the Trump administration, saying that it "may create a more positive business environment" through measures such as cuts to taxes and red tape.

Profit hopes raised

The comments followed the release by Tate & Lyle of a trading statement in which the group raised its hopes for its full-year results, saying that profits, at constant currency terms, would be "modestly ahead" of its expectations when it in November unveiled half-year results.

The bulk ingredients division, whose products include HFCS, had performed "ahead of our expectations", helped by "robust" North American sweetener volumes.

The result of the near-completed annual round of pricing talks between HFCS manufacturers and major users such as soft drinks groups was "expected to delivery modest margin gains" for the current quarter.

The immediate market reaction was to send Tate & Lyle shares up 3.8% to 748p in London, although the stock had retreated by late morning to 713.9p, a drop of 0.9% on the day.

By Mike Verdin

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