By Reese Ewing
SAO PAULO, Feb 14 (Reuters) - Weak sugar prices, governmentfuel price controls and a year of frost and drought are forcingBrazil's listed sugar and ethanol companies to cut costs andconsider layoffs, as earnings reports this week have shown.
Local sugar and ethanol units controlled by Louis Dreyfus, Cosan, Bunge, Tereos and others see the cuts as essential, to stem losses until sugarprices recover from four-year lows and they can limit or reversethe negative impact of government policies on theirprofitability.
Takeovers and other alternatives to consolidate the industryare tough because of bleak market conditions and debt taken onduring a decade of expansion. Offers from newcomers in Asia andEurope are often too low to let potential sellers recoup theirinvestments.
Even the weather is not cooperating. Severe drought hasalready led analysts to cut their outlook for the harvest thatbegins in the coming weeks.
And there are no clear signs of imminent relief.
COMPANIES' LOSSES GROWING
Brazil's biggest sugar and ethanol milling group, RaizenEnergia SA expects a loss for the quarter ending Dec. 31, of115.4 million reais ($48 million), compared with a profit of164.3 million reais in the year-ago period. Raizen Energia ispart of a joint venture between Brasil's Cosan SA andRoyal-Dutch Shell, the Anglo-Dutch oil company.
In addition to smaller sugar sales volumes, Raizen Energiablamed a 5 percent decline in the value of Brazil's real againstthe dollar for the bulk of the losses.
The company said it continues to make new investments intechnology to improve efficiency, such as cellulosic ethanolproduction allowing the company to extract sugars from more ofeach kilogram of cane harvested. However, investments haveslowed in the expansion of cane production, one of the mostcapital intensive aspects of the business.
Brazil's second biggest milling group, Biosev,the sugar and ethanol spinoff of French commodities firm LouisDreyfus, on Thursday reported a loss of 203.7 million reais inthe last three months of 2013, 24 percent more than a yearearlier. Last July frost hurt cane fields supplying some of thecompany's 12 mills in Mato Grosso do Sul state and its canecrushing, sugar and ethanol output suffered as a result.
The 6 percent slide in sugar prices in the October-Decemberquarter made Biosev's business challenging, the company said.
Biosev's capital spending in the nine months throughDecember fell 21 percent to 681 million reais from a year ago.
White Plains-based Bunge Ltd said on Thursday that ithad contracted investment bank Morgan Stanley to review optionsfor its money-losing sugar and ethanol milling business inBrazil, which the company bought for $2 billion in 2009 and maynow be prepared to sell.
Despite difficulties, some millers turned mild profits.
French milling group Tereos International SA,which controls Grupo Guarani SA, reported a profit of19 million reais, down 10 percent from a year ago, in part dueto a 20 percent increase in tax liabilities. The company alsocut investments 24 percent in nine months to 588 million reais.
São Martinho SA was the only of the major groupsto post consistently steady profits this season, including netincome of 128.6 million reais in the quarter ending Dec. 31,according to a Thursday filing.
