Stronger Euro sweet news for Guysuco
-rate way above break-even figure
Stabroek News
January 1, 2004
The strengthening Euro will help Guysuco's earnings from sugar exports to Europe although many of next year's shipments were already locked into lower but still beneficial rates earlier in 2003.
Some 15 of 17 shipments for 2004 have already had their rates fixed and in 2005 rates on some future shipments have been fixed at $1.15 to $1.18 to the Euro. This practice known as hedging looks to decrease the exposure of producers to sudden price swings by guaranteeing minimum prices for future sales.
The Euro has been on a tear against a faltering dollar in recent weeks reaching a high yesterday of $1.25. This contrasts to a record low of 82.25 cents in October 2000. Since Guysuco's costs are dollar-based the stronger Euro means higher earnings for exports to Europe, which account for 50% of its total production and 70% of its revenues.
A Guysuco official said a big chunk of next year's shipments were priced at "various reasonable rates." This was done around the time of the Iraq war and while lower than the current rate the decision to lock in the rates was based on eliminating the huge risks associated with currency swings. The official noted that the exchange rate could have gone either way earlier in the year so Guysuco is reasonably satisfied by its strategy. He added that the management takes financial advice on such matters.
Guysuco's break-even level for its exports to Europe is said to be when the Euro is worth around 96-97 US cents.
Guysuco had previously stated that every one cent movement against the Euro was equivalent to $170 million, in terms of losses or gains.
Production targets for 2004 are projected at 330,000 metric tons (MT), up from 302,000 MT for 2003. A drought which lingered from 2002 initially hampered crops earlier in the year but production recovered thanks to improved weather.
The higher Euro will mean more internally generated revenue for the crucial Skeldon project. The factory contract with the Chinese company, CNTC could be finalised in the next 6 to 8 weeks.
He added that while Skeldon will improve Guy-suco's unit cost of production, job cuts amounting to 5,000 workers across the industry workforce of 17,000 plus 3,000 to 4,000 temporary employees, would be needed. But the official cautioned these would come over the next five to six years through a process of attrition and would more affect those temporary workers brought on during peak times. He reiterated that there were no plans to close any estates and said the industry had to be seen in the context of its overall economic contribution to Guyana and closing estates would be far too painful in social costs.