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Presentation to analysts
by
John Barneby, Chairman, Czarnikow Sugar
www.czarnikow.com
C.Czarnikow Sugar Limited, 24 Chiswell Street, London. EC1Y 4SG. United Kingdom. Tel + 44 20 7972 6600.Director of Research: Toby Cohen
About Czarnikow
Czarnikow has been in the sugar business since 1861
Czarnikow is the leading professional services company in the sugar market
Czarnikow has a ‘first hand’presence in all major sugar markets of the world and employs over 120 professional staff
…The Premier Provider of Sugar Market Services…
A Global Office Network
New York
Mexico
Rio
São Paulo
Moscow
Dubai
Singapore
Hong KongDelhi
Nairobi
Czarnikow Services
Trade Facilitation
Distribution
Structured Finance
Risk Management
Futures
Corporate Services
Strategic Consultancy
Research
World Market Outlook: Sugar Production in a Dynamic Price Environment
0
10
20
30
40
50
60
52 58 64 70 76 82 88 94 00
c p
er
lb
Cuban Missile Crisis
Oil Price Shock
Oil Price Shock
Post-BoomTrough
SuezCrisis
KoreanWar
The Post War Cycle
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
Dec-05 Feb-06 Apr-06 Jun-06 Aug-06
Cents per lb
Sugar prices more than doubled at the start of the year.
Prices rose to the highest point seen in 25 years.
This spike has triggered a reaction
NYBOT No.11; First Futures 2005 - 2006
Trade Flows(Dec 05)
-2000
-1600
-1200
-800
-400
0
400
800
Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07
Whites Raws
Market Response
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06
Cents per lb
Trade Flows(Dec 05)
-2000
-1600
-1200
-800
-400
0
400
800
Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07
Whites Raws
Trade Flows(March)
-2000
-1600
-1200
-800
-400
0
400
800
Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07
Whites Raws
Market Response
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06
Cents per lb
Trade Flows(March)
-2000
-1600
-1200
-800
-400
0
400
800
Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07
Whites Raws
Trade Flows(June)
-2000
-1600
-1200
-800
-400
0
400
800
Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07
Whites Raws
Market Response
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06
Cents per lb
Speculative Activity
-60,000
-30,000
0
30,000
60,000
90,000
120,000
150,000
180,000
210,000
Jan-04 Apr-04 Aug-04 Dec-04 Mar-05 Jul-05 Nov-05 Mar-06 Jun-065
7
9
11
13
15
17
19
21Speculative Open Interest
1st Delivery New York No.11
lots c per lb
1990 1992 1994 1996 1998 2000 2002 2004 2006-6
-4
-2
0
2
4
6
8
10m mtrv
Stock Change
Production / Consumption
2
4
6
8
10
12
14
16
18
20
1990 1992 1994 1996 1998 2000 2002 2004 2006
US c/lb
-6
-4
-2
0
2
4
6
8
10m mtrv
Stock Change No.11 Spot Price
Production growth at above 15c
Production contracts at below 10c
Production / Consumption
Trade estimated: 26m tonnes
0 5m 10m 15m 20m 25m
Brazil
Thailand
EU
Australia
Guatemala
South Africa
Cuba
Others
World Trade 1990
Brazil
Thailand
EU
Australia
Guatemala
South Africa
Cuba
Others
Trade estimated: 40m tonnes
0 5m 10m 15m 20m 25m
World Trade 2005/6
Brazil
Thailand
EU
Australia
Guatemala
South Africa
Cuba
Others
0 5m 10m 15m 20m 25m
World Trade 2006/7
CU
S$/l
b
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00Ja
n-0
3
Mar
-03
May
-03
Jul-
03
Sep
-03
Nov-
03
Jan-0
4
Mar
-04
May
-04
Jul-
04
Sep
-04
Nov-
04
Jan-0
5
Mar
-05
May
-05
Jul-
05
Sep
-05
Nov-
05
Jan-0
6
Mar
-06
May
-06
Jul-
06
NYBOT No.11 Price and Brazil Costs
… however, the relationship between supply and price is being altered by structural change in the EU, Russia & Ethanol markets…
0
1000
2000
3000
4000
5000
6000
7000
66/6
7
68/6
9
70/7
1
72/7
3
74/7
5
76/7
7
78/7
9
80/8
1
82/8
3
84/8
5
86/8
7
88/8
9
90/9
1
92/9
3
94/9
5
96/9
7
98/9
9
00/0
1
02/0
3
04/0
5
Exp
ort
Volu
me
('000s
tonnes
)
c per lb
0
10
20
30
40
50
60
EU net importer EU production expands / becomes net exporter8000
Building the EU Regime
0
1000
2000
3000
4000
5000
6000
7000
66/6
7
68/6
9
70/7
1
72/7
3
74/7
5
76/7
7
78/7
9
80/8
1
82/8
3
84/8
5
86/8
7
88/8
9
90/9
1
92/9
3
94/9
5
96/9
7
98/9
9
00/0
1
02/0
3
04/0
5
Exp
ort
Volu
me
('000s
tonnes
)
c per lb
0
10
20
30
40
50
60
EU production expands / becomes net exporter8000
Building the EU Regime
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,00087/8
8
88/8
9
89/9
0
90/9
1
91/9
2
92/9
3
93/9
4
94/9
5
95/9
6
96/9
7
97/9
8
98/9
9
99/0
0
00/0
1
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
06/0
7
07/0
8
'000 mt
0
50
100
150
200
250
300
350
400
450
US$/tonne
EU exports Avg white sugar prices
7.9m tonnes in final year. 4.8m tonnes shipped to end April
EU Exports: Insensitive to price
20 m Production
2m Preferential
Imports
16m Consumption
6m Exports
=
Excess production exported
The Old EU Sugar Regime
14 m Production
3 m Imports
16m Consumption
= 1m Exports
Excess production retained in Europe
The New EU Sugar Regime
Total 45s Trade: 11m tonnes
Total 45sCirca 70%
Others
Dubai
Brazil
Thailand
Malaysia
South Africa
South Korea
EUPRE REFORM
Total White Trade: 17m tonnes
EU and the White Sugar Market
Total 45sCirca 70%
Others
Dubai
Brazil
Thailand
Malaysia
South Africa
South Korea
EU POST REFORM
Total 45s Trade: 11m tonnesTotal White Trade: 17m tonnes
EU and the White Sugar Market
Constructed approximately 5/10 years ago
Constructed less than 5 years ago
Under construction
New Refinery Raw Sugar Demand
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.089/9
0
90/9
1
91/9
2
92/9
3
93/9
4
94/9
5
95/9
6
96/9
7
97/9
8
98/9
9
99/0
0
00/0
1
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
06/0
7
07/0
8
08/0
9
09/1
0
million tonnes
Imports Production Consumptionforecast
Declining import demand due to resurgence in beet production
Russian TrendsM
illio
n t
on
nes
Can
e
0
50
100
150
200
250
300
350
400
450
75
/7
6
76
/7
7
77
/7
8
78
/7
9
79
/8
0
80
/8
1
81
/8
2
82
/8
3
83
/8
4
84
/8
5
85
/8
6
86
/8
7
87
/8
8
88
/8
9
89
/9
0
90
/9
1
91
/9
2
92
/9
3
00
/0
1
93
/9
4
94
/9
5
95
/9
6
96
/9
7
97
/9
8
98
/9
9
99
/0
0
01
/0
2
02
/0
3
03
/0
4
04
/0
5
05
/0
6
Ethanol (cane production basis)
Sugar (cane production basis)
Brazilian Sugar & Ethanol
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Mar-
03
Jun
-03
Sep
-03
Dec-
03
Mar-
04
Jun
-04
Sep
-04
Dec-
04
Mar-
05
Jun
-05
Sep
-05
Dec-
05
Mar-
06
Jun
-06
mo
nth
ly v
eh
icle
sale
s
The production of cars with flex-fuel engines [able to run on gasoline and ethanol] has revolutionised demand for ethanol powered cars.
Brazilian Flex Fuel Car Sales
Source: Anfavea
10
15
20
25
30
35
40
45
50
Jan
-05
Feb
-05
Mar-
05
Ap
r-0
5
May-0
5
Jul-
05
Au
g-0
5
Sep
-05
Oct
-05
No
v-0
5
Dec-
05
Jan
-06
Mar-
06
Ap
r-0
6
May-0
6
Jun
-06
Jul-
06
Au
g-0
6
No.11 Anhydrous Ethanol Hydrous Ethanol
Brazilian Sugar & Ethanol R$/50kg of Sugar Equivalent
Brazil (cane)
Colombia (cane)
Thailand(cassava)
U.S (corn)
Crude Oil vs. Ethanol
0
10
20
30
40
50
60
70
80
96 97 98 99 00 01 02 03 04 05 06
US/barrel
… these structural changes will continue to have an effect, but the February price spike has provoked a short term reaction …
Thailand Production
90/91 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00forecast
Million tonnes
1999 2000 2001 2002 2003 2004 2005 2006 2007
Million tonnes
Sugar Consumption Starch Consumption*
Sugar Production
China: Starch vs. Sugar
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
… and then there is India …
0.00
5.00
10.00
15.00
20.00
25.00 Production Consumption
Mill
ion m
ttq
98/9
9
99/0
0
00/0
1
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
06/0
7
Indian Production Cycle
-8.00
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
Chan
ge
in P
roduct
ion (
m t
onnes
)
98/9
9
99/0
0
00/0
1
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
06/0
7
Indian Production Cycle
150
200
250
300
350
400
450
500
Jan-0
2
Jul-
02
Jan-0
3
Jul-
03
Jan-0
4
Jul-
04
Jan-0
5
Jul-
05
Jan-0
6
Jul-
06
USD per tonne
0
50
100
150
200
250
300
350
400metric tonne
Exports - Right Scale Domestic S30 prices
World market whites prices
Indian Export Sensitivity
• Producers and consumers have responded to the February price spike and the market has corrected downwards.
• The effects of structural change are still working through.
• But low stocks, higher global production costs and rising oil prices should support a higher ‘floor value’ for the market.
Conclusion