June 22, 2017 / 11:56 AM / in a month

INTERVIEW-Tereos sees emerging markets key to growth post-EU sugar quotas

PARIS, June 22 (Reuters) - France's Tereos, the world's third largest sugar group, has expanded its trading desks in emerging countries as it looks to find new export markets for higher output after the European Union ends quotas later this year, its chief executive said.

The EU will abolish its production and export quotas on Sept. 30, which has encouraged sugar companies in the bloc to raise production from next season by what analysts have estimated will be around 15 percent in total.

That has fuelled a glut in sugar that sent prices to 16-month lows on Thursday.

"We already do a third of our sales in emerging countries. Only that share can rise over time, structurally, because this is where the market is expanding," Tereos CEO Alexis Duval told Reuters in an interview.

For now, forecasters expect the EU to produce 18.3 million tonnes of sugar in 2017/18, with exports of 2.7 million tonnes.

Part of the extra output will replace what the EU currently imports, but Tereos will also need to find new export markets to sell the 25 percent rise in sugar output the group expects in France this year after producing 2.5 million tonnes in 2016, Duval said.

"In Europe sales can increase through consolidation but the market is not growing organically," Duval said.

More health-conscious consumers in developed countries have lowered their sugar consumption in the past years.

Analyst group Platts Kingsman says world consumption may grow at its slowest pace in seven years in 2017/18 with a rise of 1.04 percent, nearly half the average growth of about 2 percent per year over the last decade.

Tereos is not alone in chasing overseas growth.

Germany's second-largest sugar refiner Nordzucker said last month it is in talks on international expansion in South America, Asia and also within Europe.

Meanwhile, a revival in Ukrainian sugar exports could pose a challenge for western European sugar exporters.

Tereos Commodities

To boost exports further, Tereos has opened six trading desks through its Tereos Commodities unit, of which two were started last year, in New Delhi and Nairobi.

Other desks are in France, Brazil, Switzerland and Singapore.

Tereos Commodities traded over 1 million tonnes of sugar in the fiscal year to March 31 with a total revenue of $500 million. A large part of that came from Brazil where Tereos exports half of its output, which came to 1.6 million tonnes last year.

Duval pointed to Nigeria, India, Indonesia, West and East Africa and South-east Asia as key growth markets for global sugar producers.

"Every day world (sugar) consumption is shifting a bit more towards emerging countries. When we look at consumption growth it's +2.5 percent per year in emerging countries and zero in developed countries," Duval said.

"The difficulty for a producer is more and more, how do I make the link between my field in Europe or Brazil and the final consumer who is far from it," he added.

Tereos also aims to expand output and exports of grain-based protein, a by-product of its starch activities, increasingly used in bakery, aquaculture and pet food products, Duval said.

After two difficult years due to weak sugar prices, Tereos posted a 14.7 percent rise in sales to 4.8 billion euros ($5.4 billion) in the 2016/17 fiscal year to March 31, mainly helped by a rebound in sugar prices and an expansion in its international trading.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) rose 38 percent to 607 million euros, also pulled up by its sugar cane and starch businesses.

Despite the recent fall in prices, Tereos expects earnings to rise slightly in the 2017/18 fiscal year, due to higher European output and good competitiveness.

Duval also expected a rebound in sugar prices after the recent slump although declined to give a forecast.

"Our point of view is that the correction is normal in terms of fundamentals but excessive because of the funds who amplify moves," Duval said, noting that some were now short and would have to come back into the market to cover their positions.

$1 = 0.8957 euros Additional reporting by Ana Ionova in London, editing by David Evans

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