SAO PAULO, Oct 30 (Reuters) - Sugar and ethanol producers in Brazil have reduced their debt to the lowest level in five years as a result of sharp cost cuts and almost no investments in cane processing capacity, investment bank Itaú BBA said on Tuesday.
According to data collected by the bank from companies accounting for around 80 percent of Brazil’s center-south cane crushing capacity, mills closed the 2017/18 season with average debt of 117 reais ($31.47) per tonne of cane crushed, versus 120 reais in the previous season, and the lowest since the 104 reais per tonne in the 2013/14 crop.
In the worst moments of the sector in 2014 and 2015, debt was above 130 reais per tonne of cane crushed, a level unbearable for many companies and which led to dozens of closures in the world’s top sugar exporter.
“Debt reduction came mainly due to cost cuts, particularly the reduction of expenses in cane fields,” said Pedro Fernandes, a Itaú BBA director.
Fernandes said mills have increased efficiency in field operations, making better use of machines, cutting their work forces and holding on to heavier investments.
He believes the companies heading to a more favorable outlook due to improving sugar prices and high ethanol demand, which should cut debt further and begin to provide conditions for the return of investments.
“In the last years, the return on investments in Brazil’s sugar sector was smaller than capital costs, so there was not much interest,” he told reporters in the sidelines of Datagro’s international sugar conference in Sao Paulo.
That situation has also hit mergers and acquisitions. Just a few deals were reported since the boom years before 2012.
Despite the improving outlook, Fernandes does not see a return on investments in capacity soon, saying mills would opt to improve use of current capacity before any expansion.
“Idle capacity is still significant in the sector; mills will look to reduce that,” he said.
$1 = 3.7181 reais Reporting by Marcelo Teixeira; Editing by Dan Grebler