Sugar shortage bolsters Tongaat

Johannesburg - Sugar producer Tongaat Hulett [JSE:TON] says that it is well positioned to benefit from an expected future shortfall in global sugar markets.

"There is a big question in the market now about where sugar will come from in the next few years," said CEO Peter Staude.

"This places us at an advantage because the market is favouring greenfield operations. We already (invested) capital in production and exposure to markets with a lot of growth potential," he added.

Staude said that the shortfall in global markets is partly caused by Brazil, a major sugar producer, directing increasing quantities of its current sugar output towards ethanol and not planting additional sugar cane fields.

Ethanol is a by-product of sugar production and can be used as an alternative to fossil fuels.

Staude was speaking at a presentation of Tongaat's annual results, which are already reflecting how supply shortages in global markets have bolstered the group.

The company headline earnings for the year to end-December 2009 were 44% higher at 812.1c/share.

Revenue increased 28% to R7.1bn for the same period. Profit from operations was 37% higher at R1.5bn.

Tongaat operates in three major markets - South Africa, Mozambique and Zimbabwe. Staude said that Mozambique and Zimbabwe have the potential to increase output.

These markets have preferred access to European Union markets, where they benefit from a floor price, which is fixed until 2015. The floor price is currently at world sugar price levels.

Tongaat announced that it is almost ready to begin using a newly installed sugar production facility in Mozambique, where the company has been steadily building up its operations.

Boost from Zimbabwe

The operations are aiming to increase sugar output by 123% to 300 000 tonnes per annum over the course of the next two planting seasons.

In Zimbabwe, Tongaat has reported an encouraging improvement in its operations. Staude said that this has been led by the adoption of the US dollar as legal currency in 2009, following the collapse of the Zimbabwean dollar.

The US dollarisaton of the economy has meant that Zimbabwe can now sell sugar in US dollars prices, which has led to domestic sales prices reaching regional levels.

Staude expects to step up output of sugar from Zimbabwe during the course of the current financial year.

Tongaat is nursing the Zimbabwean operations to recovery and the goal is to boost sugar production to the optimum capacity, which is currently 600  000 tonnes/annum.

Mozambique and Zimbabwe have additional opportunities to expand into ethanol production.

- Fin24.com