Positive Environment Expected for LatAm Sugar & Ethanol in 2022

The Latin American sugar and ethanol (S&E) sector outlook is expected to be neutral in 2022 compared to 2021, according to Fitch Ratings.

“The favorable sugar hedge positions taken by Brazilian producers, Latin America’s largest S&E region, paired with the expectation of attractive ethanol prices should offset the negative impact of increased production and financial costs on their cash flows,” said Claudio Miori, a Director at Fitch.

Sugar prices in BRL terms are expected to remain at historically high levels while the maintenance of average international oil prices at the same levels seen in 2021 should make the domestic ethanol market look attractive for Brazilian S&E issuers in 2022. “As sector fundamentals remain unchanged, credit conditions are expected to be favorable to the best rated issuers albeit at the expense of higher financial costs as the Brazilian benchmark interest rate increases”, Director Miori remarked.

Lower leverage is expected for the 2021/2022 crop ending March 31 2022, as FCF improved across the board on higher prices. Further leverage improvements in the next 2022/2023 crop season would depend on the recovery of Brazilian sugar cane crop and investments required to improve the quality of Brazilian cane fields. “The harsh weather conditions and fires seen in Brazil’s Center South in 2021 have compromised planting activities and damaged sugar cane roots and are expected to hold back a more meaningful increase in crushed volumes in the 2022/2023 crop season compared to 2021/2022”, Director Miori concluded.

Fitch Ratings

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