Brazil's Biosev mill closing reflects deepening cane industry woes
By Reese Ewing and Chris Prentice
SAO PAULO/NEW YORK, March 21 (Reuters) - Plans by Biosev SA , Brazil's No. 2 sugar and ethanol producer, to slash costs and idle a mill due to a prolonged sector downturn are the latest sign of the industry's crisis amid weak prices and global oversupply.
Biosev, controlled by French commodities trader Louis Dreyfus, said on Thursday it plans to suspend operations at its Jardest plant, one of its 12 mills, and transfer the plant's cane to be processed at nearby mills.
A series of droughts and frosts in recent years have cut yields and left Biosev with insufficient cane to feed its mills. With sugar and ethanol prices weak, Biosev is opting to shut one plant and run the rest longer rather than boost acres.
It marks the latest move to unwind nearly a decade of rapid expansion by large milling groups that expected ethanol to generate big returns. Efforts by the government to cap fuel prices have reduced producer profitability.
"There's too much capacity, and Brazil is the country that expanded the most, mainly due to forecasts of ethanol demand that didn't pan out," said Michael McDougall, senior vice president at brokerage Newedge USA.
Biosev also plans to scale back investment to align itself with what it considers "a prolonged downward cycle ... and depressed prices" in the sector.
While Jardest represents a small portion of the company's estimated 38 million tonnes of annual crushing capacity, the plans by Biosev, one of the world's biggest commodities merchants, underscore the problems facing Brazil's sugar and ethanol producers as prices languish near 3-1/2-year lows.
At about 17 cents per lb, raw sugar prices are close to or below breakeven, and a recent rally has stalled on renewed demand worries. When debt financing costs are factored in, nearly all Brazilian mills are losing money, according to analysts. Continuación...