UPDATE 1-Cargill, Copersucar to form joint sugar trading venture

* Both companies already among world's top sugar traders

* Venture may limit options for smaller Brazil mills

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LONDON, March 27 (Reuters) - U.S.-based agribusiness and global commodities trader Cargill said it was forming a joint sugar trading business with Brazil's Copersucar, which is likely to be the world's largest.

The joint venture, in which each company will own a 50 percent stake, is expected to be completed in the second half of this year, Cargill said on Thursday.

"It's basically the marketing arm of Cargill joining the production arm of Copersucar. They are completely different entities, so it's a perfect fit really," a European analyst said.

Both companies are among the world's top sugar traders, with their major competitors including Sucres et Denrees (Sucden), Louis Dreyfus and ED&F Man.

The new entity "would be among the biggest ... if not the biggest (sugar trader in the world)", Platts Kingsman analyst Claudiu Covrig said.

"Copersucar is stronger internally (within Brazil), while Cargill is seeing better the international market. The logistics of Cargill are fantastic in different commodities, so it is a win-win situation," he said.

Cargill carried out a major shake-up of its sugar-trading activities in late 2011, when it suffered its worst quarterly performance in a decade, with sugar losses among the factors cited.

Top trader Jonathan Drake left the company in late 2011 and was replaced by Ivo Sarjanovic, who will be appointed chief executive officer once the new company is formed.


"Cargill have gone under a restructuring since Jonathan Drake left. They have been noticeably less aggressive ... maybe it (the deal) is a sign that they're going to step up to the plate and really go for it again," the European analyst said.

Copersucar has 47 associated mills in the main centre-south cane belt of Brazil, the world's leading sugar producer. It exported 6.8 million tonnes of sugar in 2013, an increase of 11 percent from the previous year, despite a fire in October which crippled its Santos terminal.

"This is the latest development of a consolidation which has been unfolding in the sugar market," analyst Julio Maria Borges of consultants and brokers Job Economia said.

"The smaller mills and trading companies will find it harder now, because there are few options for buyers with Copersucar and Cargill working together."

The cane crop in Brazil is used to produce both sugar and bioethanol. Weak prices and four straight years of oversupply have dented global margins, hurting even the most efficient mills, and consolidation in the sector has been expected.

The biggest exporter of Brazilian bioethanol, Raizen, was created in 2010 when oil major Royal Dutch Shell formed a joint venture with Brazilian producer Cosan.

"This is good for the sector. It shows Cargill has confidence in Brazil. They will likely have some gains from combining their logistics operations at least," said the head of the trading desk at a large Asian trader, which does business with Cargill and Copersucar.

"We'll have to see the details, but if Cargill hand off some of the origination work to Copersucar and focus on the international side of the sugar trade, it might work well."

Both companies' ethanol businesses and fixed assets, such as terminals and mills, are excluded from the transaction.

Cargill also announced on Thursday it will stop trading coal trading and dealing in gas and power in Europe, becoming the first traditional commodities trading firm to step away from the hard-hit sector.

(Additional reporting by Christine Prentice in New York and Reese Ewing in Sao Paulo; editing by Jane Baird)