SAO PAULO (Reuters) - Chinese commodities trader COFCO International is investing in its cane processing plants in Brazil to expand ethanol production, as it expects that next season the fuel will again give better returns than sugar.
COFCO is building new distillation columns and tanks at three of its four plants in Brazil, to increase ethanol capacity, the company’s global head of soft commodities Marcelo de Andrade told reporters during the sidelines of Datagro 2019 International Conference on Sugar and Ethanol.
The investment indicates the Chinese trader does not see any significant improvement on sugar prices in the short term, betting ethanol will still generate more profits for Brazil-based mills, as it has for the last two seasons.
“The outlook continues to be favorable to ethanol. The sugar market is flattened, there is too much sugar in India,” Andrade said.
He said the sugar market would need to rise to around 14 cents per pound to start to attract sugar sales from India. “There is this gap in the market, Indian sugar stocks, so I think we will have another year in the current level of prices,” he said.
The COFCO executive said Brazilian mills would likely start to favor sugar production over ethanol only when prices reach a level around 15 cents per pound. On Monday, New York raw sugar prices were quoted at around 12.50 cents per pound.
Brazilian mills reached a record low cane allocation to sugar production last season at 35%, directing 65% to produce ethanol. They are on the way to have a similar low sugar allocation in the current season, as ethanol prices and demand remain strong in the local market.
Andrade said that with the investments it will be able to shift its production mix 10 percentage points toward ethanol.
The company will crush around 15.2 million tonnes of cane this season, and plans to increase crushing to 17 million tonnes next season.
The executive said the Chinese company was still seeking acquisition targets in the Brazilian sugar industry, but has yet to find the right one.
“I have never had so much pressure from COFCO to buy mills as I have now,” he said, adding that the mills he evaluated so far had too many problems related to debt and lack of operational licenses, since those companies have ceased to pay taxes and other obligations due to the difficult financial condition.
Reporting by Marcelo Teixeira; Editing by David Gregorio