Power Generation Seen Sustaining Brazilian Sugar Mills

Brazilian sugar mills should expand into electricity generation to boost their income amid low global prices for the sweetener, London-based trader Czarnikow Group Ltd. said.

While all Brazilian plants use bagasse, the fibre that remains after sugarcane is crushed, as a fuel to generate power for internal use, only 170 sugar mills have the capacity to export electricity, Czarnikow said in a statement today. About 296 mills will be operating in Brazil’s center-south region this season, the company estimates. Technological advances open up the possibility for the sugarcane sector to triple the volume of electricity generated, according to Czarnikow.

“Capturing the income potential from cane biomass is important to ensure the future efficiency of the sector and sustain income through the downturn in the business cycle,” Toby Cohen, Czarnikow’s head of analysis, said.

Electricity from bagasse represents about 7 percent of Brazil’s requirements, while hydroelectric power meets the majority of the country’s needs, according to Czarnikow.

Selling electricity can add about 20 percent to revenues from sugar and ethanol for individual mills, Czarnikow estimated. Fourteen sugar and ethanol groups have formed generation joint ventures with financial and industrial partners since 2007, it said.

Raw sugar prices have dropped about 50 percent since reaching a 30-year high of 36.08 cents a pound in February 2011 as world supplies consistently surpassed demand, hurting the financial situation of Brazilian millers.

Sugar settled yesterday at 17.91 cents a pound on ICE Futures U.S. in New York. The raw sweetener is 9.1 percent higher this year, after falling for the last three years. Global sugar supply in the 2013-14 season will exceed demand by 4.4 million metric tons, the London-based International Sugar Organization said in May.

Czarnikow is a sugar and ethanol trading, advisory and supply-chain management company with 12 offices worldwide, according to its website.

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