Illovo of South Africa Expects Sugar-Price Gains in 12-18 Months

Illovo Sugar Ltd., South Africa’s second-biggest producer of the sweetener by market value, expects prices for the commodity to rise within the next 18 months as producers cut output.

Illovo’s earnings dropped 10 percent in the six months to Sept. 30 after prices for the commodity averaged $0.17 a pound in the period, less than half the record high reached in 2011. The price needed for Brazil, the world’s biggest sugar producer, to invest in sugar output is $0.23 a pound, meaning supply should drop in the medium term, Illovo Managing Director Gavin Dalgleish said today in an interview.

“Over the next 12 to 18 months we should move from surplus to deficit,” he said. “We do think we’re near the bottom of the cycle.”

Four years ago, countries including Brazil and Australia started investing heavily in sugar production as prices rose to $0.35 a pound, the highest since at least 1990, leading to oversupply of the sweetener. Dalgleish expects this trend to reverse as companies can’t continue producing at a price that’s lower than their costs.

Illovo’s net income declined to 789 million rand ($71 million) in the six months to Sept. 30 from 878 million rand a year earlier, the Mount Edgecombe, South Africa-based company said today in a statement.

To cope with low sugar prices, Illovo is cutting costs, diversifying its sales to include more downstream products and increasing its warehouse capacity, Dalgleish said.

Import Duties

Import tariffs imposed by the South African government this year will lower Illovo’s exposure to the global sugar price, the company said. Dalgleish would like the state to increase these tariffs.

“The sugar industry the world over enjoys government support,” he said. “All we’re asking is to be placed on the same terms as Brazil and India.”

Bad weather also affected the company’s profit, with the total crop harvested down 8.5 percent to 4.3 million metric tons in the six-month period. South Africa, the biggest-producing country out of six where Illovo operates, received late summer rainfall following a dry winter, it said.

London-based Associated British Foods Plc, owner of the Primark budget-clothing chain, holds 51 percent of Illovo’s stock, according to data compiled by Bloomberg. Illovo declined 2.6 percent to 26.28 rand by 1:29 p.m. in Johannesburg.

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