Cosan Cozying Up to Japan

Yesterday, Cosan S.A. (CZZ), the Brazilian sugar and ethanol producer, signed a three year contract with Mitsubishi of Japan for exporting ethanol fuel to Japan. According to the contract, the price will be based on the ethanol rates in Brazil.
 
Approximately 80 million liters of ethanol are likely to be exported every year, which will be transformed into ETBE, a combination of ethanol and isobutylene, in Japan. ETBE directly mixed with gasoline helps in eliminating distribution network modifications than ethanol mixed with gasoline.
 
Japan, which has the world's second largest automobile fleet, will help Brazilian ethanol producers to benefit through increase in exports.
 
CZZ, being the largest ethanol producer in Brazil and the second largest in the world, has a capacity of producing 2.3 billion liters of ethanol in Brazil annually. It is also the largest exporter of ethanol in the world, and exports around 20% of the production to Europe, the U.S. and Asian countries.
 
Cosan has been growing through acquisitions. Recently, the company entered into a bilateral agreement with Rede Comercializadora de Energia S/A (REDECOM), for the supply of biomass electricity. CZZ is also considering a 25% stake or the entire sugar unit of CSR Ltd., Australia’s leading supplier of building products and sugar, ahead of CSR’s planned de-merger and listing of the unit.
 
Although ethanol prices have fallen in 2009 from there 2008 highs, the company is expected to benefit from rising sugar prices, which will help report net profit in the fiscal year 2010. Thus, we continue to rate the stock a Buy.

Read the full analyst report on CZZ