Trade houses see consolidation in Brazil sugar sector

Consolidation in top sugar producer Brazil’s sugar sector is expected after trade houses have mushroomed in recent years, traders said on Wednesday.

The number of raw sugar traders in Brazil has more than doubled since 2008 with newcomers including international traders Olam, Wilmar and Bunge competing with longer standing players such as Cargill and Louis Dreyfus.

“We’ve seen a real proliferation of trade houses in the last five years,” said Ben Pearcy, chief development officer and managing director sugar and bioenergy for agribusiness giant Bunge.

“There are many players today and there’s not the economics to support the number of players.”

Many of the trade houses have invested in mills but traders said Brazil had been a tough market in recent years after low cane volumes in successive seasons.

Adverse weather, such as droughts and frosts, and a lack of husbandry cut yield potential in centre-south Brazil and the lack of throughput was a fixed cost burden.

“Fragmented Brazilian industry structure will definitely provide fertile possibilities for mergers and acquisitions,” said Stefan Uhlenbrock, analyst with F.O. Licht.

However, Bunge’s Pearcy noted that many of Brazil’s large players’ immediate focus was on improving their own operations.

“Consolidation always takes more time than you think. What we’ve seen in grain and oilseeds is that it sometimes takes an external factor,” said Pearcy, referring to the price rises in grains and oilseeds which helped spur consolidation.

Traders said that the role of trade houses in the sugar market had become increasingly blurred as they evolved from their traditional role which included deliveringcommodities from surplus to deficit areas, to also producing commodities and investing along the supply chain.

Jonathan Drake, head of sugar at trade house RCMA, noted logistics had been a good starting point for traders getting into the Brazilian sugar market.

Global sugar deals in recent years include the world’s largest listed palm oil company Wilmar’s purchase of Australia’s largest sugar miller, CSR’s Sucrogen, and German sugar producer Suedzucker buying a stake in British commodities trader ED&F Man.

Speaking at the International Sugar Organization’s seminar in London, international commodities trader Louis Dreyfus’s global head of sugar Jacques Gillaux asked whether the growth in the number of Brazil sugar traders could lead to consolidation to around five or six players.

“If we had significantly higher sugar prices to stay… the stress on working capital needs may shrink the field,” said Gillaux.

“If it happens in a period of high prices maybe highly capitalised trade houses will be best positioned.”

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