Ethanol production is softening the blow of plunging world sugar prices for Brazil's mills, although the sector could see further consolidation, the country's trade and investment promotion agency said on Thursday. World sugar prices dropped to their lowest in more than 10 years this week, primarily pressured by over-production in India, Thailand and the European Union in the current season.
Brazil, the world's biggest producer of sugar, has largely coped with the recent glut by channelling more of its cane into ethanol, which Roberto Jaguaribe, president of the Apex-Brasil agency, called a "stabilising factor" for the industry. Current fuel policy in Brazil is favourable to ethanol and has created an environment where mills can remain profitable and competitive, he added.
Jaguaribe said prior policies caused some "harm" but the sector - which was battered by a wave of bankruptcies in recent years - now has the "right economic conditions" to be profitable. "We are totally committed to ethanol," he told a press briefing in London. "We are not sure about the sugar, but we are sure about the ethanol," he said, adding that the agency was not concerned about the future of the sugar cane industry."
Ethanol sales by Brazilian mills have surged this season and hit an all-time high for the second half of August. Jaguaribe said many mills are now very efficient, although he noted the overall health of the industry remains a "mixed bag" and further consolidation is likely.
"There are going to be some takeovers, probably," he said. Weak sugar prices from 2010 to 2014 wreaked havoc on Brazil's industry, triggering the closure of dozens of mills and leading many others to seek bankruptcy protection, a process that is ongoing.
There are also still "formidable impediments" to exporting large volumes of ethanol to the world market, Jaguaribe said, which could cap the potential for dollar earnings for cash-strapped and indebted mills.
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