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Brazil's Raizen Senses Sugary Opportunity In Potential Crisis

--Sugarcane miller Raizen to expand capacity by acquisition, greenfields --Raizen sees big increases in sugarcane production in two years --Shell hopes Raizen ethanol will contribute to global fuel network By Paul Kiernan Of DOW JONES NEWSWIRES SAO PAULO -(Dow Jones)- Continuing turmoil in global markets could create acquisition opportunities for Brazilian sugar and ethanol producer Raizen as it seeks to expand its sugarcane crushing by some 50% over the next five years. Raizen, a joint venture between Brazil's Cosan SA (CZZ, CSAN3.BR) and Royal Dutch Shell PLC (RDSA.LN), plans to invest up to $7 billion expanding its crushing capacity to 100 million metric tons of sugarcane per year, from 65 million tons currently. Pedro Mizutani, Raizen's executive vice president, told reporters this week that the company thinks that through renovation and expansions, it can squeeze about 5 million tons more from its 24 existing sugarcane mills. The remaining 30 million tons would be reached through a roughly 50-50 combination of greenfield projects and acquisitions. "This is not fixed," Mizutani said. "This is our plan, but of course it can change depending on the market. If you have a financial crisis now and many companies start to sell, we can buy." Mizutani said another economic or financial crisis--the possibility of which has been raised by a series of volatile swings in global financial markets in recent weeks--would be an opportunity for Raizen. "We have a very strong cash position--two big shareholders." Though its impact on Brazil was softer than for most big economies, the 2008-09 recession deeply affected the sugarcane industry. Highly fragmented among several hundred, mostly family-owned mills, the industry underwent a wave of consolidation as financing dried up and small-time owners sold out to sell to bigger foreign and domestic players. A pause in routine investments to renew canefields was perhaps the leading factor behind this year's weak harvest. Cosan emerged as the largest cane producer. Its mills, now listed as Raizen, crush nearly 10% of the sugarcane in Brazil. With sugarcane production stalling across Brazil's main center-south growing region, Cosan this week slightly trimmed its estimate for Raizen's 2011-12 cane crush to between 53 million and 56 million metric tons. Given the growing gap between milling capacity and actual output, Chief Executive Vasco Dias said the company has "increased significantly" its capital expenditures to renew cane plantations. It will take some time for the company to reap benefits from the investments. Sugarcane, a type of grass, takes about 18 months after initial planting to be ready for harvest. After that, a plantation can be cut like a lawn once a year for five to six years before productivity falls sharply, necessitating another planting. "So I'm not expecting, not necessarily in the 2012-13 harvest, but in two years' time, a substantial increase in our production," Dias said. A growing shortage of ethanol in Brazil's fuel market, combined with U.S. import tariffs and blending subsidies for its own corn-based ethanol, mean the domestic market will remain Raizen's main revenue source for at least a few more years. But Mark Williams, Royal Dutch Shell's director of downstream, said in a video call from London that the energy giant is holding out hope that its stake in Brazilian ethanol could play a bigger role. "As a global fuels supplier, we have access to global supply chains, and sooner or later, Brazilian sugarcane ethanol may become important in that," Williams said. "If the trade barriers were to fall, and the market were more open, we would definitely see the opportunity to export sugarcane ethanol in greater and greater quantities." -By Paul Kiernan, Dow Jones Newswires; (+55)11-3544-7074, [email protected]

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