Shell, Cosan’s Sugar Venture Will Expand Output 9% in New Season

Raizen, a joint venture of Royal (RDSA) Dutch Shell Plc and Cosan Industria & Comercio SA in Brazil, will process 9 percent more sugar cane in the season starting in April than a year earlier, commercial director Ivan Melo said.

Raizen’s cane processing in the 2012-13 season will be 57.6 million metric tons, with sugar output up about 15 percent to 4.3 million tons and ethanol supply about 10 percent higher at 2.4 billion liters (634 million gallons), Melo said in an interview at the Kingsman conference in Dubai today. Sweetener content will also rise, he said.

“We have an accelerated replanting program and we have two mills, one in Mato Grosso do Sul and one in Goias, where production will be rising this year because they are new units,” he said. It takes five to six years for a new mill to reach capacity, he said. Melo is based in Sao Paulo.

The cane crop in Brazil’s center-south, the main growing region of the world’s biggest producer, will be 536 million tons in the period, Melo said in a speech at the conference yesterday. That compares with an output of 492.7 million tons so far this season, data from Brazilian industry group Unica show. Sugar output in the area will be 33 million to 34.5 million tons, he said.

Sugar cane output in the center-south fell for the first time in a decade in the 2011-12 season after frost, flowering and dry weather damaged the crop, Unica said. Flowering and frost reduced productivity by 4 percent last year, Melo said.

“Everybody is accelerating planting so if we have normal weather conditions, without frost and flowering, it is normal that production will rise,” he said.
Ethanol Switch

Producers in Brazil will direct 47 percent of the cane to sugar production this year, down from 48 percent in the 2011-12 season because of lower prices, he said. Both sugar and ethanol are made from raw material cane in the South American country.

Sugar reached a 30-year high of 36.08 cents a pound in February 2011, and ended the year down 27 percent on speculation supplies will outpace demand. The global surplus will be 6.5 million to 8 million tons in 2011-12, Melo said.

“Lower sugar prices will give an incentive for the Brazilian producer to want to explore the domestic and export ethanol market,” he said. “Below 22 cents a pound the producer will start looking for other alternatives other than sugar.”

Raw sugar for March delivery was up 1.2 percent at 24.22 cents a pound at 10:30 a.m. London time on the ICE Futures U.S. exchange in New York.

Brazilian ports should not experience bottlenecks this year because the sugar market is moving into a so-called contango and therefore there won’t be a rush to obtain the product, he said. A contango structure is when sugar for delivery in later dates becomes more expensive than the sweetener for immediate delivery, signaling ample supplies.

source: bloomberg