Cosan Limited Class A (NYSE:CZZ)
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Cosan SA (CSAN3.BR), Brazil's biggest sugar and ethanol company in terms of revenue, expects spare crushing capacity in the center-south region to encourage a relatively quick recovery in sugarcane production after this year, a top executive said Tuesday.
The region, where close to 90% of Brazilian sugarcane is grown, has mills capable of processing between 620 million and 650 million metric tons of cane, Cosan Chief Executive Marcos Lutz said in a conference call with journalists. That's well in excess of the region's expected sugarcane production this year of about 510 million tons, according to industry association Unica's latest estimate.
"We've got around 130 million tons of [spare] industrial capacity but no cane," Lutz said of the region. "That, I think will be recovered with a certain speed...in a cycle of about two or three years."
Lutz said high international prices for sugar should foster improvements in productivity, which declined sharply this year because of bad weather and a break in investments during the global economic crisis.
Still, with domestic demand for ethanol fuel soaring, "in the medium term, we're going to see Brazil as less of a presence in the international market for sugar," the executive said. He noted that the world needs less Brazilian sugar this year.
Brazil, the world's top sugar producer and exporter, is likely to produce less of the sweetener than last year as a result of the bad cane harvest. Unica expects output from the center-south region in the current 2011-12 harvest to fall 5.8% from a year earlier to 31.57 million tons. Exports are seen tumbling 9.4% to 22.32 million tons.
No. 2 sugar producer India is planning to free up more sugar for export, while No. 2 exporter Thailand is expected to have a bumper sugarcane crop.
"The big issue is that the world in the long term might not have much room to expand," Lutz said, adding that global sugar demand could grow by 25 million metric tons in the next 10 years or so. "I don't know if you'll be able to find that supply in the world without a strong need for Brazil to expand its planting."
Cosan, which on Tuesday reported its earnings for the quarter ended June 30, doesn't foresee its consolidated revenues, cash flow and investments being affected by the sugarcane shortage, as prices have been higher.
But Raizen, the 50-50 ethanol joint-venture Cosan operates with Royal Dutch Shell PLC (RDSA.LN), will see a minor impact. Raizen is now expected to crush between 53 million and 56 million tons of sugarcane in the year ended March 31, 2012. That's down from a previous estimate of 56 million to 60 million tons.
The earnings before interest, taxes, depreciation and amortization, or Ebitda, of Raizen's energy unit is seen between 1.9 billion Brazilian reais ($1.19 billion) and BRL2.1 billion, down from a previous estimate of BRL1.9-BRL2.3 billion.
-By Paul Kiernan, Dow Jones Newswires; (+55)11-3544-7074; firstname.lastname@example.org