Brazil fire destroys one of world's biggest sugar terminals

Reuters

* Fire consumed 180,000 tonnes sugar, says Copersucar

* Biggest loss to sugar market: Brazil export capacity

* Rebuilding infrastructure may take 6 months to year

By Reese Ewing and Fabiola Gomes

SAO PAULO, Oct 18 (Reuters) - A fire ravaged Copersucar'ssugar terminal in Brazil on Friday, paralyzing operations of theworld's biggest sugar trader and putting 10 million tonnes ofexport capacity offline for six months or more.

The fire hit all of Copersucar's warehouses at the Santosport, igniting 180,000 tonnes of sugar - roughly 10 percent ofBrazil's monthly sugar exports - and driving prices of thesweetener to a one-year high on global markets.

The loss of nearly all of its port capacity will sendCopersucar scrambling to lease or rent terminal space to coverits obligations to global buyers and exchanges in the comingmonths. Copersucar says nearly a fifth of the world's sugarexports flows through its trading desks.

"A conservative estimate would be six months to get this inoperational form (again)," said a U.S. trader. "The jewel intheir crown has been effectively destroyed."

Copersucar's rivals in Brazil will likely pick up some ofthe slack left by the fire and benefit from the extra exportvolume and improved sugar prices. The fire did not affectterminal operations at other exporters at Santos, such as CosanSA, Sao Martinho SA or Noble.

The disaster adds one more bend to the tortuous path thatBrazilian agricultural products must take to global markets.Potholed roads, scarce rail transport and backed up portsalready undercut margins of Brazilian sugar and grain producersand cause headaches for global commodity markets.

(For details on Santos sugar capacity see: )

Santos port authority Codesp, which manages day-to-dayoperations at Brazil's main port, said the fire started in theconveyor system, which transports sugar through Copersucar'swarehouses, around 6 a.m. Brasilia time (0900 GMT).

Television footage showed a three-story high mountain ofsugar engulfed in flames inside a warehouse that had lost mostof its siding and roof to the flames. Some of the overhangingconveyor belts that transport sugar between the warehouses andeventually to waiting ships appeared to have toppled over orwere lying on the pavement alongside some of the warehouses.

Firefighters eventually contained the blaze, which couldkeep smoldering for another two days, said Codesp, noting that"facilities involved in the accident are totally destroyed."

International sugar markets reacted quickly. ICE March rawsugar prices rose more than 6 percent to a one-year highon news of the fire before paring gains. The March contractsettled up 2.5 percent at 19.48 cents per lb.

Copersucar officials said they had no additional informationabout the cause or containment of the blaze beyond what the firedepartment and port authority Codesp reported.

COUNTING ON STOCKPILES

Analysts at investment bank Credit Suisse said thedestruction of the terminal infrastructure would not only affectshort-term deliveries but would "also cause a disruption inCopersucar's loading operations in the next 3-6 months."

Local commodities risk management adviser Archer Consultingsaid, "We imagine for example a scenario of eight months to ayear before the terminal returns for full capacity."

Brazil is at the tail end of a record 585 million tonnecenter-south cane harvest that is expected to produce 34 milliontonnes of sugar. While roughly 15 percent of the crop remains tobe crushed, sugar mills will shut down by Christmas and notresume production until April at the soonest.

Huge global stockpiles are contributing to a global glut ofroughly 4.5 million tonnes of the sweetener, giving some wiggleroom to cover shipments that Copersucar may struggle to make inthe months to come, traders said.

Backwardation, or the spread of nearby over later monthdeliveries for sugar futures, flared on news of the fire,which will crimp the world's main sugar port's ability to meetits expected shipments to the New York ICE exchange.

Without Copersucar's terminal, which was expected to deliverthe bulk of shipments from Santos this month, the port couldstruggle to cover the roughly 996,000 tonnes of sugar that ICEsays it will ship in October. ICE forecasts 1.37 million tonnesof Brazilian sugar shipments this month.

In June, Copersucar inaugurated an expansion project atSantos that doubled its export capacity to 10 million tonnes ayear.

Copersucar represents 47 sugar mills in Brazil and recordedrevenue of $4.1 billion in 2012. The company had hoped in Juneto expand its annual trading volume to 9 million tonnes from 7.2million tonnes in 2012.

When large stockpiles of sugar catch fire, it can beextremely difficult to extinguish quickly. As the sugar burnsinto the center of the mound it creates a carbonized outer shellthat inhibits the penetration of water and chemicals that wouldotherwise snuff out the blaze.

Firefighters will also have the challenge of dealing withsubterranean passages that connect some of Copersucar'swarehouses through which sugar is transported.

Fabrienne Pointier at data provider Platts said the loss ofthe large volume of sugar is not as bad as the damage the firehas done to Copersucar's infrastructure at Santos.

"The real significance is that it is going to slow down thelogistics. It's going to be many months to rebuild thosewarehouses," Pointier said.

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