TABLE CONTENT Page 1 - EU sugar prices 1 2 - EU sugar production 3 3 - EU sugar import licences 5 4 - EU sugar balances 7 5 - EU molasses 10 1 - EU SUGAR PRICES Quota As indicated and expected in our EU sugar market report Q3 2014, average EU quota sugar prices (ex-mill basis) dropped significantly over the last quarter of 2014 (see table below) which marked the start of the new EU 2014/15 sugar campaign (Table 1). The drop between September and October 2014 (-10.4%) surely reflects a significant decrease in prices that were negotiated with end-users on an annual basis and which are usually taking place 3 to 6 months prior to the start of the new campaign. On the other hand, price decrease that occurred between October and December 2014 can be seen as an indicator of a further drop in EU spot prices and/or downward price adjustments of the annual negotiated price (special clauses exist to that effect), due to the huge size of the EU 2014/15 sugar production. Looking at price dispersion (Graph 1), it is interesting to note that 2014/15 quota sugar prices for November and December 2014 were below the reference price of 404 EUR/t in some EU Member States. This indicates an increase in price competition - even for quota sugar! - between European sugar producers, and clearly suggests that only the most competitive European producers will survive in a post-2017 regime. Table 1 - Evolution of quota sugar prices over Q4 2014 Price in EUR/t Change December 2014 433 Oct 2014 / Dec 2014-4.8 % November 2014 449 October 2014 September 2014 455 508 Sept 2014 / Oct 2014-10.4% December 2013 624 Dec 2014 / Dec 2013-30.6 % 1
For the coming Q1 2015, we do not see any major changes and therefore expect prices to remain in the [420-430] EUR/t range. Graph 1 - Ex-mill prices for quota sugar in the EU 750 650 EUR / t 550 450 350 Average EU ex-mill prices for quota sugar Maximum EU ex-mill prices for quota sugar Minimum EU ex-mill prices for quota sugar Out-of-Quota When compared to September 2014, the average selling price of industrial 1 sugar (also referred as out-ofquota sugar) has appreciated 4.5% over the last three months of 2014. Even though the gap between industrial sugar and London #5 contract prices on the front-term (Graph 2) increased, the gap difference did not materialize in any substantial increase of EU imports of industrial sugar from the world market. In December 2014, prices averaged 324 EUR/t against 275 EUR/t for London #5 contract reconstituted on an exmill basis. 1 Industrial sugar is mainly used by the yeast, chemical and pharmaceutical industries. Prices reported are indicative and exclude contracts for industrial sugar delivered in liquid form. 2
Graph 2 - Evolution of the average EU ex-mill prices for quota sugar VS industrial sugar selling prices in the EU VS London n 5 sugar prices on the front-term (reconstituted on an ex-mill basis) 750 700 650 600 550 500 EUR/t 450 400 350 300 250 200 Industrial sugar selling prices in the EU London n 5 sugar prices on the front-term (reconstituted on an ex-mill basis) Average EU ex-mill prices for quota sugar 2 - EU SUGAR PRODUCTION According to our calculations, the 2014/15 sugar production in the EU-28 will amount to 19.76 Mt white value (Graph 3 and Graph 4 for per Member State production estimates) : +0.01 Mt when compared to our previous estimate. Total production will be distributed as follows: a fresh production of 19.20 Mt white value, a carry-forward (from 2013/14 to 2014/15) of 0.56 Mt white value. From a methodological point of view, one should keep in mind that our production estimate includes a sugarequivalent volume corresponding to ethanol production using sugarbeets and which is included and quantified in our balance sheets (p.7). 3
Graph 3-2014/15 EU Member States production estimates (< 1 Mt) tonnes, white value 1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 carry forward fresh production Graph 4-2014/15 EU Member States production estimates (> 1 Mt) 6 000 000 5 000 000 tonnes, white value 4 000 000 3 000 000 2 000 000 1 000 000 0 Germany France (overseas included) Netherlands Poland United Kingdom carry forward fresh production 4
3 - EU SUGAR IMPORT LICENCES Table 2 gives an overview of issued certificates for EU traditional sugar imports after the first three months of the 2014/15 campaign. Overall, the volume of issued certificates has decreased by 20.8 % when compared to the same period in 2013/14. From 01/10/2014 To 12/12/2014 From 01/10/2013 To 13/12/2013 ACP & LDC countries Table 2 - Issuance of EU traditional sugar import certificates Free Trade CXL including Agreements transitional Balkans & (Andean + Central concession for Moldova American Croatia countries) Industrial sugar no duty 98 EUR/t duty no duty no duty no duty TOTAL [t white value] [t white value] [t white value] [t white value] [t white value] [t white value] 614 360 57 168 84 238 86 559 3 728 846 053 570 489 383 074 111 632-4 000 1 069 195 This decrease is mainly due to the drop in the number of issued CXL import licences which is 85% down when compared to 2013/14. This noticeable lack of interest for CXL imports is not much of a surprise given the current level of prices on the EU market which makes those imports generally unprofitable (Graph 5). Graph 5 - Average sugar quota prices (ex-mill) in the EU VS Minimum interest prices (ex-refinery) for European refiners using imported raws for refining under CXL regime 650 EUR/t 550 450 350 Minimum interest prices for EU refiners using raw sugar imported under CXL Average sugar quota prices in the EU 5
According to our estimations, the total EU sugar imports for 2014/15 campaign (excluding sugar imported in processed products) will be significantly lower than during the previous campaign and could amount to no more than 3.05 Mt (against 3.46 Mt in 2013/14) distributed as follows : 2.75 Mt of traditional imports, 0.3 Mt imported through the Inward Processing Regime (IPR) 2. Low sugar prices and massive fresh production are the main reasons for such drop in our estimated level of imports. Looking at the interest price for EU refiners importing raw sugar for refining from ACP-LDCs and given the current level of sugar prices in the EU (Graph 6), our estimate regarding the final import volume of ACP-LDCs sugar for 2014/15 (2.05 Mt) can be considered relatively conservative but this estimate takes into consideration the existence of long-term relationships (and agreements) between EU and ACP-LDC partners therefore helping to maintain a reasonable level of imports even though profitability may be very limited Graph 6 - Average sugar quota prices (ex-mill) in the EU VS Minimum interest prices (ex-refinery) for European refiners using ACP-LDC imported raws for refining 800 700 EUR/t 600 500 400 Minimum interest prices for European refiners using ACP-LDC imported raw sugar Average sugar quota prices in the EU All in all, the current situation on the EU market makes it difficult for the European refining industry. However, Cristal Union (France) recently announced the acquisition of shares in an Italian company called SFIR Raffineria di Brindisi 3 which owns a refining unit in Brindisi (South-East of Italy). 2 IPR imports & exports are usually not included in EU sugar balances as IPR sugar import volume is equivalent to IPR sugar export volume by definition (IPR is therefore considered as neutral for overall EU sugar balances). 3 ASR is also a shareholder of this company and it is believed that this movement is to pave the way for a strategic partnership between Cristal Union and ASR. 6
4 - EU SUGAR BALANCES The following 2014/15 sugar balances are estimated based on: a total 2014/15 sugar production of 19.76 Mt white value 4 including a fresh production of 19.20 Mt white value and 0.56 Mt of sugar carried forward from 2013/14 to 2014/15, total 2014/15 sugar imports amounting to 3.05 Mt. From a methodological point of view, quota sugar balance: Includes production under control 5, Includes Inward Processing Regime (IPR) import & export volumes even though they are equivalent by definition and therefore do not impact final EU sugar stocks at all. Main points for EU quota sugar balances: A declarative adjustment of the beginning stocks held by EU producers and refiners on 01 October 2014 (1,84 Mt), A 39%-reduction in the final stocks of the 2014/15 campaign (1.13 Mt) leading to a below-7% stock-to-use ratio on 01 October 2015, a significant drop in the level of EU sugar imports. Main points for EU out-of-quota sugar balances: a further increase in our final 2014/15 ethanol output - using sugarbeets as a raw material - which is estimated to be equivalent to 1.70 Mt, a massive volume of sugar to be carried forward from 2014/15 to 2015/16 (2,34 Mt). According to our latest information, the vote of any exceptional measures intended to help in reducing the amount of sugar to be carried forward 6 from 2014/15 to 2015/16 is now very unlikely. With such a massive volume of carry forward, there is no doubt 2015/16 sugarbeet acreage will significantly drop (a 10% decrease seems to be reasonable at this stage). 4 All figures of EU sugar balances are expressed in white value equivalent unless stated otherwise. 5 Production under control refers to a common practice that allows the production of quota sugar by some Member States on behalf of other Member States that are not able to fulfil their own quota. 6 By virtue of the EU legislation, the total volume of out-of-quota sugar to be carried forward from 2014/15 to 2015/16 will be considered as the very first volume of quota sugar for the 2015/16 campaign. 7
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5 - EU MOLASSES After a sharp drop in prices between August and September 2014, the average price for imported beet molasses has been quite steady over the past three months and currently stands at 137 EUR/t. In the meantime, prices of imported cane molasses increased quite steadily over the last quarter of 2014 to reach 154 EUR/t in December 2014. Table 3 - Average monthly import prices for molasses (48% sugar content) - CAF Rotterdam Cane molasses Beet molasses August 2014 134,8 159,3 September 2014 133,2 139,9 October 2014 144,9 132,4 November 2014 148,3 131,1 October 2014 154,2 137,3 All in all, beet molasses are therefore cheaper to import than cane molasses (Table 3) : this inversion pattern is not a surprise and happens quite systematically at this period of the year (Graph 7) as the start of the new sugar campaign in the EU increases the availability of beet molasses on the market, leading to a drop in prices of imported beet molasses. Graph 7 - Average monthly import prices for molasses (48% sugar content) - CAF Rotterdam EUR / t 170 160 150 140 130 120 110 100 Cane molasses Beet molasses 10
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