CSR Sugar SUGAR MARKET OUTLOOK PRESENTATION January 2006 Presentation compiled with the assistance of Czarnikow Sugar. For further information on the global sugar industry, please refer to the Czarnikow website www.czarnikow.com. Sugar Market Outlook � Accelerating sugar price – a new dynam ic in the m arket, or just another blip? � W hat are the im plications for the m arket and the Australian industry? 2 1
Historical Price Context 60 New York Spot Prices c per lb 55 50 45 Oil Oil Price 40 Price Shock Shock 35 30 Cuban Missile Crisis 25 Last Post-Boom Trough Suez 20 Crisis 1990’s range Recent Range 15 Korean War 10 5 0 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 3 What has driven the recent change? 1 . Three fundam entals: � Reform in the EU � Ethanol: the new dem and dynam ic � Underinvestm ent in production outside Brazil 2 . Short term variables: � Poor crops in Thailand and I ndia � Sm aller than expected grow th in Brazil in 2 0 0 5 � US im port dem and due to hurricane im pact on crops � Speculative interest, and currency factors 4 2
Reform in the EU 5 The Old EU Sugar Regime 2 m Preferential 6 m I m ports Exports = 2 0 m 1 6 m Production Consum ption Excess production exported 6 3
The New EU Regime 1 m 3 m Exports I m ports = 1 4 m 1 6 m Production Consum ption Excess production retained in Europe 7 EU Exports mtwv 8.0 7.0 6.0 Record exports in final year 5.0 4.0 3.0 WTO limit of 1.2735m tonnes for EU25 Politically driven long term decline 2.0 1.0 0.0 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 8 4
EU Exports in a Global Context Brazil Thailand EU World Sugar Exports : 1990 Australia Guatem ala South Africa Others 0 5 0 0 0 1 0 0 0 0 1 5 0 0 0 2 0 0 0 0 2 5 0 0 0 '0 0 0 m ttq Trade estimated: 26m tonnes 9 EU Exports in a Global Context Brazil Thailand EU World Sugar Exports : 2005/ 6 Australia Record Final EU exports Guatem ala South Africa Others 0 5 0 0 0 1 0 0 0 0 1 5 0 0 0 2 0 0 0 0 2 5 0 0 0 '0 0 0 m ttq Trade estimated: 40m tonnes 10 5
EU Exports in a Global Context Brazil Thailand EU World Sugar Exports : 2006/ 7 Australia EU exports fall to WTO limit Guatem ala South Africa Others 0 5 0 0 0 1 0 0 0 0 1 5 0 0 0 2 0 0 0 0 2 5 0 0 0 '0 0 0 m ttq 11 Structure of the White Sugar Market Total White Trade 17m tonnes Total 4 5 s Circa 7 0 % 45s (refined) 11m tonnes Dubai Brazil EU Thailand Malaysia South Africa Others South Korea 12 6
Structure of the White Sugar Market Total White Trade 17m tonnes Total 4 5 s Circa 7 0 % 45s (refined) 11m tonnes Dubai Brazil EU Thailand Malaysia South Africa Others South Korea 13 Investment in Refining Capacity � Investment in refining capacity in response to anticipated fall in EU exports � Refinery buyers have lowered price elasticity of raw sugar demand � Re-emergence of price insensitive buyers (similar to EU / US in historic price spike scenario) 14 7
Ethanol The new dem and dynam ic 15 World Ethanol Production Brazil USA EU China India Other Europe Other Asia Other Americas World Production 38 billion litres (Source: FO Licht) 16 8
Interest in Fuel Ethanol is strengthening on the back of strong oil prices � Flex fuel cars are driving dem and grow th in Brazil � US corn belt ethanol production is grow ing apace � UK renew able fuels policy could support consum ption of 1 .5 bln litres per annum by 2 0 1 2 � Japan is talking about im ports to fund a fuel ethanol policy, but still has reservations about relying on Brazil as a single source supplier � I ndia already has a substantial ethanol industry, and is adopting an E5 policy, to soak up local surplus m olasses � Thailand has developed a draft fuel ethanol policy, but governm ent is reluctant to im plem ent unless it is price com petitive w ith gasoline 17 Could sugar become an energy commodity? US c/lb $US/BRL US c/lb $US/100G 16.00 80.00 16.00 240.00 NY11 Prompt NY11 Prompt 15.00 Crude Oil 15.00 Gasoline 220.00 14.00 70.00 14.00 200.00 13.00 13.00 12.00 60.00 12.00 180.00 11.00 11.00 160.00 10.00 50.00 10.00 140.00 9.00 9.00 8.00 40.00 8.00 120.00 Jan-05 Apr-05 Aug-05 Dec-05 Jan-05 Mar-05 Jun-05 Sep-05 Dec-05 18 9
Monthly Sales of Flex-fuel Cars m onthly vehicle sales 120,000 100,000 80,000 60,000 40,000 20,000 0 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 19 Monthly Sales of Flex-fuel Cars m onthly vehicle sales 120,000 � 1.5m FFVs will be on the road by the start 100,000 of the new crop. 80,000 � By end 2010 we 60,000 forecast this could rise to 7.6m – around 40,000 30% of the fleet. 20,000 � Potentially 22 bln litres of domestic 0 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 demand by 09/10. 20 10
Ethanol market an important modifier of sugar prices � Ethanol returns in Brazil linked to sugar prices � Flex fuel cars deliver a genuinely elastic market for the Brazilian sugar industry � Most fuel ethanol programs are domestically oriented, and based on the most economic local feedstock: • USA Corn based • Brazil Sugar based • India Molasses based � Global trading in fuel ethanol remains small, but could grow rapidly if oil prices continue to climb 21 Under-investm ent outside Brazil 22 11
Global Production: Key Players '000 mtrv 140,000 China US Australia Thailand Former USSR South Africa Philippines Colombia Guatemala Cuba EU India Brazil 120,000 100,000 80,000 60,000 40,000 20,000 0 70/71 72/73 74/75 76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 23 Short term variables 12
CS Brazil Crushing Patterns 30.0 20 The 2005/ 06 season has been quite 18 disappointing – down 10m tonnes on initial forecasts 25.0 16 Crushing Days lost due to Rainfall Fortnightly Crushing Volume 14 20.0 12 15.0 10 8 10.0 6 4 5.0 2 0.0 0 May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mch April average no. of days lost due to rainfall 04/ 05 05/ 06 Projections '05/ 06 25 … less sugar for export during Q1 2,500 Brazil Exports 05/ 06 Brazil Exports 04/ 05 TOTAL exports during 2005/ 06 are likely to be around 2,000 16.5m tonnes dow n from 17.2 last year 1,500 1,000 Strong early season demand has front 500 end loaded exports this year 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 26 13
A tight Brazilian Ethanol Balance… NNE Brazil CS (May/Apr) (May/Apr) 1,861 570 2,431 Stocks 30 April, 2004 2004/05 Crop 13,593 1,803 15,396 Production Fuel Consumption 11,340 1,440 12,780 Exports 1,781 602 2,383 Other Uses 860 90 950 Transferences 250 -250 0 Stocks 30 April, 2005 1,223 491 1,714 2005/06 Crop Production 14,470 1,553 16,023 11,990 1,485 13,475 Fuel Consumption 2,050 450 2,500 Exports 890 92 982 Other Uses 430 -430 0 Transferences 333 447 780 Stocks Forecast 30 April, 2006 Stocks will be very low at the end of the season given monthly demand of over 1bln litres 27 Thai Sugar Production should recover '000 MT '000 MT 80,000 8,000 Sugar Cane 75,000 7,500 70,000 7,000 65,000 6,500 60,000 6,000 55,000 5,500 50,000 5,000 45,000 4,500 40,000 4,000 35,000 3,500 30,000 3,000 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06* 28 14
Indian Sugar Balance already sharply improved '000 MT 25,000 Imports Exports Consumption Production 20,000 15,000 10,000 5,000 0 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 Feb-06 Mar-06 Apr-06 May-06 05-06 f 29 Weaker US Currency has helped lift price AUD & BRL THB 1.10 60 AUD/USD BRL/USD USD/THB (RHS) 1.00 55 0.90 50 0.80 45 0.70 40 0.60 35 0.50 30 0.40 25 0.30 0.20 20 Jan-96 Dec-97 Nov-99 Oct-01 Sep-03 Aug-05 30 15
Open Interest shows rapid growth Lots US c/lb 600,000 17.00 Open Interest NY11 Prompt 15.00 500,000 13.00 400,000 11.00 300,000 9.00 200,000 7.00 100,000 5.00 2002 2003 2004 2005 31 Speculative interest a major component lots c per lb 210,000 Speculative Open Interest 15 1st Delivery New York No.11 14 180,000 13 Record spec. participation in the sugar market – 150,000 in particular large hedge funds. 12 120,000 11 90,000 10 60,000 9 30,000 8 0 7 -30,000 6 -60,000 5 14/10/03 25/11/03 06/01/04 17/02/04 30/03/04 14/05/04 22/06/04 03/08/04 14/09/04 26/10/04 11/11/05 27/12/05 01/10/02 12/11/02 24/12/02 04/02/03 18/03/03 28/04/03 10/06/03 22/07/03 02/09/03 07/12/04 18/01/05 01/03/05 12/04/05 31/05/05 12/07/05 19/08/05 04/10/05 32 16
Outlook & I m plications 33 Trade Flows Q4 '0 5 Q1 '0 6 Q2 '0 6 Q3 '0 6 Q4 '0 6 Q1 '0 7 Q2 '0 7 Q3 '0 7 1000 600 200 -200 -600 -1000 -1400 W hites Raw s -1800 34 17
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