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Editorial Comment

In an attempt to demonstrate the fact that mental acuity does not decline with age, The New York Times reported the following (apocryphal) story a few years ago. A couple of pensioners came to the city to visit their daughter. When they arrived at the station, they noticed that they were short of cash to pay the taxi fare. So they went to a nearby pizzeria, requested a de- livery of a pizza to their daughter’s place and hitched a ride to the house with the delivery driver. Toll refineries find themselves in a tight squeeze where they are in badly need of smart alternatives to survive.

The global surplus has seen sugar futures slide about 35% in the past year. With European Union returning to the export market this season, this has added bearish pressure on the white sugar premium which has dropped to about US$60 a tonne from a high of US$115 a tonne last year. With India forecast to produce a sizeable surplus in the current campaign and likely to resume exports, this could further impact on the premium that white sugar commands over raw as it mostly produces white sugar. Speaking at the Dubai sugar conference in early February Alexandre Luneau, a member of Tereos’ executive board pointed out that EU exported one million tonnes in the first three months of the 2017/18 season, mainly to the Egypt, Mauritania, Sri Lanka, Israel, Turkey, Lebanon and Syria. With the 2018/19 EU crop unlikely to see much change in acreage, the current level of output and surplus for exports is likely. As Martin Todd of LMC International stressed at the event, most of the global surplus is in the form of white sugar.

The sugar refining sector supports three types of sugar refineries, namely backend and standalone (toll and destination). Backend refineries have ready access to locally produced raw sugar and have the flexibility to sell both in the domestic and global market. Stan- dalone destination refineries (e.g. in Saudi Arabia), sources raw sugar in the world market, but through both economies of scale and enjoying a captive domestic market, they can be competitive. The most vulnerable are the toll refineries (such as Al Khaleej
in Dubai). They are exposed to world markets in both buying raw sugar and selling refined sugar.

Al Khaleej is undoubtedly one of the prominent toll refiners which has been hardest hit by the drop in white sugar premium. With the Etihad sugar refinery in Iraq coming on-stream in February 2015, it lost its export market of some 500,000 tonnes white sugar and for the first time in 2016 sold over 200,000 tonnes of refined sugar through the ICE. This year, the output from the refinery is likely to fall by around 20% in 2018 due to an unattractive white sugar premium. The out- put in 2017 was 1.8 mln tonnes. Other toll refineries in the Gulf States are unlikely to fare differently.

In response to the squeeze on his refining business, Jamal Al Ghurair, the CEO of Al Khaleej and a member of one of Dubai’s richest families, is investing through The Dubai-based Al Ghurair Group US$333 million in a US$ 1 billion project in Egypt which includes 900,000 t beet sugar factory that is expected to start production in mid-2020 and operating at full capacity by February 2021. The group has also secured planning permission to build a new beet sugar factory in Spain that will have the capacity to produce 864,000 tonnes sugar.

Commenting on this move, Al Ghurair is quoted as saying “Time has come when we have realized that the sugar market has to change from being produced in one portion of the world, shipped across the oceans to be consumed in another part of the world”.

Arguably, this is a compelling rationale, even though it is touch bit couched. Given the Hobson’s choice in the current market place, shifting into producing sugar seems to be the best option where access to finance is not an issue.

Continue reading this article and access additional International Sugar Journal news by downloading the March 2018 issue of ISJ Lite below.

Download ISJ Lite

ISJ Lite is a 'taster' version of the monthly International Sugar Journal, including a sample selection of articles and updates for the sugar industry.
ISJ Lite | Agribusiness Intelligence

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