Germany's second largest sugar refiner Nordzucker expects to post losses into 2020 as tough conditions in the European market batter profitability and encourage the group to look at expansion globally, its chief executive said.
The sugar industry has been in turmoil since the European Union scrapped production and export quotas last year, which prompted many producers to boost output just when sugar prices plummeted due to a build up of world stock levels.
"This pressure has hit us as well. This business year will be a loss making business year for us," Nordzucker's CEO Lars Gorissen told Reuters.
"The next business year - from 1 March 2019 to the end of February 2020 – will also be loss making because of the low prices," he said on the sidelines of an ISO sugar conference in London this week.
Mitigating Losses
Gorissen said the group was working on boosting efficiency to mitigate losses.
"The prices are indeed that low that they are on a level where we do not cover costs – almost no producer will be able to be profitable at these price levels," he said.
Analysts said there has been a rise in EU sugar prices in recent weeks although the benefit to processors was limited as much of this season's supplies had already been sold to major buyers such as beverage makers at depressed levels.
Raw sugar prices hit a 10-year low in late September, but have pared some losses since. White sugar has also risen in the same period, but both remain at low levels.
In September Germany's Suedzucker, Europe's largest sugar producer, cut its full-year earnings forecast.
Nordzucker produces about 2.7 million tonnes of sugar annually and already has extensive activities outside Germany including Denmark, Sweden, Poland and Belgium.
Better Financial Strength
Analysts have expected German sugar producers, with better financial strength than counterparts elsewhere in Europe, to launch takeovers in the newly liberalised market.
"While the conditions in the market do exert some pressure, we are definitely stable," Gorissen said, referring to the group's capital levels.
Earlier this month Nordzucker said it had entered into non-binding talks to buy Australian producer Mackay Sugar.
Gorissen said sugar consumption in Europe was likely to see a small decline going forward, with growth expected in South East Asia.
'Beyond Europe'
"We want to develop beyond Europe, Mackay could be a first step if that works," he said.
"We are at a very early stage so far - we have only put in a non-binding offer. But we are very interested in working with the growers of Mackay."
Gorissen said consolidation was expected in the EU sugar market.
When asked if Nordzucker was also looking at acquisitions in Europe, he said: "We continue to monitor the market very closely. It depends on the opportunities."
"There are two independent lines of strategy - one is continuing to focus on Europe which is where we are at home and where we also want to develop. But we want to play a role in the global market."
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
