ZIMBABWE –South Africa’s Tongaat Hulett (Tongaat) says its Zimbabwe sugar production is likely to decline to 475 000 tonnes this year from 488 000 tonnes in 2014 due to an increase in cane demand.
Peter Staude, the group’s chief executive, said the anticipated decline is “mainly as a consequence of no cane being diverted from the independent ethanol plant at Chisumbanje”.
He also noted that low dam levels, which only recovered in early 2014, will also have a negative impact on its Zimbabwean sugar production.
Tongaat’s operations in Zimbabwe consist of Triangle and a 50,3 percent stake in Hippo Valley Estates, representing a combined installed sugar milling capacity of more than 640 000 tonnes.
Recently, the company indicated that it can increase its annual sugar production by 400 000 tonnes over the next four years without having to invest in new mills, but largely on expected improvements in yields and extraction rates.
Staude said this would reduce unit cost production, given that most of the cost base was fixed. In the half year to September 2014, Tongaat reported a 16,6 percent rise in headline earnings to $77,3 million.
About two-thirds of the expected increase in production would be from improved yields and extraction rates, while the rest would be driven by additional hectares under plantation.
Despite concerns around health issues such as diabetes in developed markets, long-term global demand for sugar is expected to continue growing, fuelled by emerging markets where consumption per capita remains low.
Staude noted that if per capita sugar consumption across sub-Saharan Africa rose to match the levels of South Africa and some of its neighbouring countries, the region would need new supply of 6,8 million tonnes a year.
In the period under review, operating profit from Tongaat’s various sugar operations grew 26 percent to $86,4 million, as the division benefited from cost reductions last year while lower cane valuations in the prior interim period were not repeated.
While sugar prices had been depressed in an oversupplied world market, Staude said this could change quickly as there were no major investments in new mills, and as major supplier Brazil recently announced an ethanol price hike.
Tongaat’s starch operation, which supplies to various markets including to makers of coffees and creamers and to paper manufacturers, grew operating profit 13,8 percent to $26,4 million.
The company’s Zimbabwe sugar operations’ operating profit for the half-year amounted to $32 million compared to $23 million in the same period in 2013.
“This period has seen higher sales volumes, mainly due to improved local market protection — tariffs and import licences — implemented in April 2014. Export prices into the EU are lower than those earned last year,” said Staude.