The external factors have been affecting the sugar market, preventing NY prices recovery from lasting long. In the middle of last week, we saw sugar quotes heavily plummet. Blame it on commodity prices dropping in the Chinese market or that country’s stock exchange, which has devalued dramatically. Oil, for instance, has already lost almost 12% (WTI) and 8% (Brent) only this month. Although average gas price in Center-South is still lower than that on the foreign market by about 7.4%, gas price readjustment by Petrobras (NYSE:PBR) might be postponed if this oil downward trend goes on - this is not good news for the mils.
We thought more sugarcane would be directed toward ethanol as a result of better paid prices than that paid for sugar, but what we have seen over the last days is hydrous price drop due to sale pressure by mills in order to make cash and meet their most pressing financial obligations. Besides, the real has heavily devalued this week, which must have helped the NY sugar market fall even further - this is not good news for the mills.
To top it all off, the amount of sugarcane crushing published by UNICA this week reached a 46.5 million-ton record and the market – more short-sighted than an adolescent – of course promptly reacted like there was no tomorrow. Some companies are setting the amount of crushing for 2015/2016 close to 600 million tons.
Despite the gray scenario, NY ended up closing the week basically unchanged for the first maturity month, with October/2015 closing at 12.41 cents per pound, a little more than 2 dollars per ton over the previous week’s closing. The other months, however, were weaker and closed at up to 3-dollar-per-ton falls. So, there is nothing to show that we can get our hopes up because October is influenced by the market’s short-term perception. The spread for October/2015 – March/2016, which was trading at a 160-point discount, closed at 124 points, after having narrowed in up to 105 points.
The cost of sugar production by the Archer model is R$38.9823 per bag ex-mill, which is about 12.40 cents per pound FOB Santos. That is, exports have a negative margin today. Despite the different costs we have seen on the market, I believe that hydrous has a slightly higher return, but even so, there is nothing for the foreign market to feel excited about.
The average closing price of sugar in NY in June was 11.75 cents per pound, almost 22% lower than the average price in January, the steepest fall between these two months since 2010. The average price of 11.75 cents per pound refers to the Archer model estimating the top price peak for October/2015 (negotiating month for March/2016 at the stock) at 15.69 cents per pound.
This week, another Ethanol Summit, one of the most important events of the world on renewable energies, - especially ethanol and sugarcane byproducts - which takes place every two years and is organized by ÚNICA, was held in São Paulo. At the first discussion panel, where a lecture given by the president of Petrobras, Aldemir Bendine, was expected, the audience was taken by surprise when the oil state-owned company’s executive regretted to have to leave earlier due to another urgent commitment. That is, a total lack of respect toward those who were present and looking forward to hearing the president talk about the company’s situation and its relations to the sugar-alcohol sector today.
It is hard to believe the esteemed executive did not set aside a day on his calendar for such an important event, which happens every two years. The ugly truth is that being afraid of the possible embarrassment he might have at the panel discussion table and the possible provocations by the amazing journalist William Waak, who again hosted the event expertly, and certainly wouldn’t miss the chance to bring the “petrolão” subject into discussion, the state-owned company executive left through the back door. In his brief presentation to the audience, he stumbled over the vernacular and struggled with poor Portuguese language. This is the face of Dilma’s Brazil and her tamed executives.
Have a nice week everybody.