Fitch Ratings gives negative outlook for Brazilian ethanol sector in 2015

In Brazil, the outlook for the Latin America sugar and ethanol sector is negative for 2015, according Fitch Ratings. Sluggish recovery of international sugar prices, limited availability of working capital financing and modest increase in domestic ethanol prices should continue to pressure the credit quality of most issuers in the industry, according to Fitch’s 2015 outlook report.

Fitch expects the downgrades to outnumber rating affirmations, while no upgrades are projected for Latin American sugar and ethanol (S&E) companies during 2015. Leverage is expected to increase as crushed volumes decline and the required investments in cane fields and industrial assets keep pressuring FCF. Fitch expects the prospects for liquidity improvements to remain limited in 2015 as systemic risk increased following the financial problems announced by large players in 2014. Operation efficiency and tight cost control will remain key and the magnitude of downgrades will depend on the ability of companies to slow the cash burn process while improving liquidity.