- Peru has suffered its driest year in a decade so far in 2020.
- Its cane crop has performed poorly as a result meaning its sugar production is 56k tonnes smaller year-on-year.
- This, coupled with the increased demand for ethanol-based sanitation products throughout the pandemic, means many Peruvian mills are producing ethanol to earn more money.
Peruvian Mills Choose Ethanol Over Sugar
- Peru’s domestic sugar prices have been high throughout 2020.
- They started to increase in November 2019 and reached their peak in March this year, when COVID-19 reached full stride.
- However, the pandemic has caused a surge in demand for ethanol-based hand sanitisers and other such products.
- With this, many Peruvian mills switched to make ethanol from cane as it pays more at present.
- Like Brazil, Peru has the flexibility to produce sugar or ethanol, depending on which offers the best returns that year.
- We think Peru could produce 260m litres of ethanol this year, up 18.6m litres year-on-year.
- We observed similar levels in 2016, which was a dry year and subsequently poor, in terms of cane and sugar production.
- This brings us onto another reason why Peruvian mills decided to make the switch.
- So far this year, Peru’s rainfall has been almost its poorest in 30 years, second only to that seen in the same period of 2018.
- This has cut cane yields and further influenced the mills’ decision.
- When we observed similar weather in 2018, sugar production totalled 1.3m tonnes.
- We therefore think we will see a similar-sized crop in 2020, which is not dire, compared to the five-year average of 1.2m tonnes.
- However, Peru’s annual sugar consumption remains fairly constant at 1.3m tonnes, meaning Peru will have to import an additional 200k tonnes of sugar.
Who Will Fill This Void?
- Peru has imported 126k tonnes more sugar from Colombia this year, in an effort to fill its production void.
- It usually imports and exports sugar to and from Colombia under the Andean Free Trade Agreement, but this trade very much depends on what is happening in each country’s domestic market.
- With Peru’s domestic sugar price currently sat at 582 USD/mt, it is more profitable to sell sugar domestically than it is to export.
- For this reason, Peru has exported just 24k tonnes of sugar to Colombia so far this year, down 30k tonnes year-on-year.
- We think Peru will continue to import sugar from Colombia for as long as its domestic prices stay strong.
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