EU sugar prices ‘to see some recovery’, says ABF

Associated British Foods called time on the long-running slide in European Union sugar prices which…

Associated British Foods called time on the long-running slide in European Union sugar prices which has sent profits for the bloc’s producers, and highlighted a recovery in values in China too.

The UK-based group, which in sugar has operations in southern Africa, China and Europe, said that prices of the sweetener had “now stabilised” in the EU, after two years of decline which took them to E417.00 a tonne as of May, the latest official data available.

That represents a 27% decline year on year, and is down 43% on the E731 a tonne at which prices stood in May 2013.

However, the month-on-month drop in values in May had slowed to 0.5%, the European Commission data show.

‘Some price recovery’

And ABF said that the easing in price falls heralded a recovery, saying that “with quota stock levels reducing back towards historic norms, we expect to see some price recovery during 2015-16″.

World sugar prices as a whole have been undermined by mounting world stocks, after a succession of years of world production surplus, with New York raw sugar futures averaging some 30% less in May than in the same month of 2013.

However, the drop in the EU has been accelerated by strong inventories and the prospect of 2017 reforms which will ditch production quotas, increasing the competition for buyers.

The conditions have led to hard times for groups such as German-based Suedzucker, the EU’s top sugar group, which in May reported an 81% slump in annual earnings, and said it did “not foresee a turnaround in sugar prices in the near term”.

ABF itself said its AB Sugar division would report profits for the year to September 12 “substantially lower than the previous year, driven by the further decline in European sugar prices”.

Zambia record

The European performance overshadowed improvement in some other areas, including in China, where the group also highlighted “some recovery” in sugar prices, which had improved ABF’s profitability in the country.

“Prices in China increased during the year, as a consequence of lower domestic production and reduced imports leading to lower inventory levels,” ABF said.

The group added that Chinese sugar values “are still at a premium to import parity prices”, and indeed customs data for August showed a 73% jump to 485,027 tonnes in the country’s imports in July.

In southern Africa, the company’s Illovo Sugar subsidiary was on course for output of 1.69m tonnes, flat year on year, despite a drought in South Africa, with record output in Zambia helping support volumes.

Market reaction

The comments came as the group restated expectations for a “modest” decline in earnings per share in its financial year, despite raising to £30m the dent from strength in sterling.

“The net interest charge will be lower than last year with the benefit of a lower average level of borrowings,” ABF said, forecasting a lower tax rate too.

ABF shares stood 2.3% lower at 3066p in morning deals in London.