French group Tereos, the world's third-largest sugar maker, has asked regular suppliers for a 7% price reduction to help it through difficult conditions created by tumbling sugar prices, a letter seen by Reuters showed.
Like many of its European peers, Tereos has felt pressure from sliding global prices coinciding with a surge in supplies, partly due to the scrapping of European Union production quotas in 2017.
'Unpredictable Conditions'
"The economic circumstances since the end of the quotas remain difficult, thus creating unpredictable conditions," the letter to suppliers said.
"This is why ... we ask you exceptionally to grant to Tereos a price reduction of 7% compared to the current prices between our two companies in the form of tariff reduction or any other form of discount in order to allow Tereos to get through this period."
Suppliers and service providers were asked to reply to the letter by Friday, 13 March.
Tereos confirmed they had sent the letter to regular suppliers in an emailed statement.
"The idea is to regularly re-launch rounds of (re) negotiation with our suppliers, to ensure that we have the best possible purchasing conditions," Tereos said.
"It has nothing to do with alleged financial difficulties."
Key Element Of Wider Plan
The letter said that a cut in costs was a key element of its wider plan called Ambitions 2022, which aims to improve Tereos' economic performance across all its activities.
"We are launching this process after the repayment of the second half of our bond loan at the start of the year, and after the publication of the quarterly results at the end of December. It is a classic initiative, launched within the framework of Ambitions 2022," the Tereos statement said.
Tereos has posted losses for two years running although it said early last month it expected improved results in the fiscal year ending on March 31, helped by a rebound in sugar prices and strong ethanol demand.
But sugar prices resumed their slide recently due to uncertainty created by the fast-spreading coronavirus, while the current oil price rout is also expected to increase supply as producers are tempted to turn away from ethanol.
Tereos' debt stood at €2.91 billion on 31 December, 2019 versus €2.69 billion on 31 December 2018.
Helped by its sugar cane activities in Brazil, Tereos is the world's third largest sugar maker by volume and a major ethanol producer. The group had sales €4.4 billion last season.
"In the economic context we are going through, it is almost certain that no supplier who has received this letter will give a favourable response," the chairman of a company who received Tereos rebate request and who wished to remain anonymous, said.
Reuters was unable to independently establish how other suppliers planned to react to the request from Tereos.
