Global sugar prices may continue ruling firm on supply concerns

Global sugar prices are likely to continue ruling at elevated levels, probably between 19 and 22 US cents a pound for raws (₹33,075-40,375 a tonne), in the near term on concerns over lower production in the European Union and India.

This is despite higher production in Brazil and Thailand, which could act as a dampener to some extent, analysts say. India is unlikely to allow additional exports apart from the six million tonnes (mt) it has permitted until May 31 for the current sugar season to September, they say.  

Supporting factors

Raw sugar prices are up 5 per cent for March futures with the contract currently ruling at 21.30 cents (₹39,075 a tonne) on the InterContinental Exchange, New York.

Though production in Brazil is forecast to increase 7.6 per cent to 38.1 million tonnes(mt) this season and the US Department of State has projected an 8.7 per cent increase in the South American nation’s exports, supply concerns in other vital regions continue to support elevated prices, said Fitch Solutions Country Risk and Industry Research, a unit of the Fitch Group.

London-based diversified global financial services firm Marex said in its weekly sugar report that sugar stocks are low and supply from the new crop might continue to disappoint. 

French pesticide ban

“We are in the era of extreme weather. Consumption may have grown a bit more than we thought. We need to keep prices high enough to persuade producers and consumers to continue to try and squeeze production higher and consumption lower,” it said.

Fitch Solutions said though sugar production in France was expected to be lower, concerns have intensified recently following a government decision to overturn a decision to allow the use of a pesticide, known as neonicotinoids.

“While the impact of a decline in neonicotinoids on French production is unclear, representatives of the industry have warned of an increased risk of the harvest being hit with crop viruses, arguing that the currently available alternatives are inferior and have demonstrated limited ability to protect the sugar crop,” it said. 

Marex said funds which had taken huge positions are selling and trade is waiting to buy. “It will mean the market will find a new, higher range,” it said.

Weather impact in India

Fitch Solutions said the more significant development in the global sugar market is the recent downgrade in India’s shipment outlook by the Indian Sugar Mills Association (ISMA) to 6 mt. Mills in Maharashtra may end crushing operations 60 days earlier than normal as sugarcane yield has been affected due to excess rains.

Projecting India’s sugar output at 35.8 mt, Fitch Solutions said the government will likely not allow additional export volumes. 

Marex said the lower end of the sugar price is defined by ethanol parity plus a premium, which will depend on prices from April onwards. Based on this, May ICE raw sugar should be 19 cents and the upper limit will be 22 cents. 

Fitch Solutions said India’s ethanol policy to increase the blending of petrol will encourage diversion and that would set a floor price for the global sugar market. 

The USDA in its “Sugar: World Markets and Trade” pegged global production 2.8 mt higher at 183.2 mt during the current season with output in Brazil, China and Russia offsetting the declines in India and other countries. However, it projected global ending stocks 5.93 mt lower at 38.6 mt. 

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