When Bunge Ltd bought five sugar mills in Brazil's Sao Paulo state four years ago for $1.5 billion, they were considered the crown jewels of a burgeoning biofuel industry.
Now, they may be little more than millstones, hard-to-sell assets at a time of crushed margins and weak prices.
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In the industry's first major capitulation to depressed market conditions, Bunge's new chief executive announced on Thursday he will explore options, including a sale, for the loss-making business.
The news came as the firm blamed a $137 million quarterly net loss on its sugar operations, which were roiled by poor crop weather and low global prices.
As one of the last big merchants to get into the sugar market, it seems logical they should be the first to bail out.
While rivals like Cargill Inc and Louis Dreyfus Corp have been mainstays of the global sweetener trade for decades, grains-focused Bunge only entered in 2006, and began buying up mills in Brazil a year later.
But Bunge is not alone: the costs of doing business in Brazil have rocketed while the country's frenzy over biofuels has faded; weak prices and four straight years of oversupply have dented global margins, hurting even the most efficient mills.
"Mills are facing a difficult time. Bunge is one of the victims of this environment," said Bruno Lima, a senior risk management consultant at INTL FCStone in Brazil.
More than 40 smaller mills in Brazil's center-south have already been sold or shuttered in the past few years due to chronic operating losses and rising debts, removing 30 million tonnes (1 tonne = 1.102 metric tons) out of Brazil's 690 million tonnes output.
With little sign of a sustained improvement, Bunge's peers may be hesitant to take a bigger bet on a years-long bear sugar market or Brazil's struggling cane industry.
"There are no buyers right now, so you could see them simply shutter a mill," said the former director of Brazil's milling industry association Unica, Eduardo Carvalho, who now heads his own consulting firm for the sector Expressao Consultoria.
Bunge, one of the world's biggest sugar traders, has not yet discussed a sale with any suitors, but it may look to offload individual mills separately, Carvalho said.
That would follow Louis Dreyfus' local sugar and ethanol milling spinoff BioSev, which in December sold its Sao Carlos mill in Sao Paulo state for 200 million reais ($90 million) to rival milling group Sao Martinho.
Another alternative if there are no takers for Bunge's operations would be to wind down capacity.
Selling the assets would mark an exit for Bunge from milling sugar cane just six years after buying its first mill in 2007.
Analysts have estimated it has since plowed more than $2 billion into scooping up assets in Brazil's interior of Sao Paulo state, some of the choicest cane growing area in the world.
Bunge now operates eight mills which process cane into sugar and ethanol with capacity to produce 1.2 million tonnes of sugar, less than 1 percent of global output.
It was not alone. Many foreign firms including oil major BP PLC and Singapore-listed Olam bought up mills and farms in a bid to vertically integrate their businesses and bet that tight sugar supplies and a growing ethanol market would boost earnings.
But market conditions have soured as costs have escalated and the Brazilian government has placed caps on domestic fuel prices, hurting returns on ethanol and leaving the industry "rife with uncertainty", said Cesar Maria Borges, director of sugar and ethanol analyst JOB Economia.
"Multinationals like Bunge are shy about uncertainties that rest on government involvement, as is the case with the price of fuels in Brazil," he said.
Given the troubling outlook for ethanol and slim margins, it made sense for Bunge's new Chief Executive Soren Schroder to cast a deeper look over the assets when he took over the reins in June.
Weeks later, global prices hit three-year lows below 16 cents.
To the surprise of many traders and producers, prices have since staged an impressive recovery, rising 18 percent since mid-July, as refiners bought at prices they considered a bargain.
Even so, it was not enough to return Bunge's sugar operations to profit. That may be a harbinger of more pain to come for the beleaguered industry.
"If prices don't improve or if gasoline is not priced higher to help ethanol, the sector will stagnate or even decline," a U.S. trader warned.
(Editing by Josephine Mason)