Sugar prices. Raw sugar prices may rule at 25 US cents if crude oil tops $100 a barrel

Raw sugar prices could rise to as high as 25 US cents a pound (₹41,575 a tonne) in the event of crude oil topping $100 a barrel, according to industry experts at a global webinar on sugar.

“If crude oil prices touch $100 a barrel and if (Brazilian state-run oil company) Petrobras aligns its products’ prices with global rates, then ethanol parity could rise to 22-23 cents. In that case, sugar should be at premium to ethanol and rule close to 25 cents,” said Karim Salamon, Sugar Analysis Head, Wilmar Sugar.

He was responding to a question on how sugar and ethanol prices would react in Brazil if crude oil prices were to touch $100 from Praful Vithalani, Chairman, All India Sugar Traders Association (AISTA) that hosted a webinar on sugar.

Demand rebound

The discussion comes on the heels of views of crude oil reaching $100 soon by asset management firm BlackRock Chief Executive Larry Fink and Rystad Energy. Earlier this week, Goldman Sachs said a strong demand rebound could push Brent above its year-end forecast of $90 and gas-to-oil switching could add at least 1 million barrels per day (bpd) to demand, more than some estimates.

On Friday, Brent crude oil was quoted at 84.30 a barrel and WTI Texas crude at $82.72. Brent crude oil has gained 63 per cent this year and Texas crude oil over 70 per cent. Thomson Reuters reported that the scarcity premium embedded in the structure of Brent crude oil futures widened to the most since 2013 this week.

Also read: India prime candidate to meet rising global demand for sugar, says Marex Spectron MD

It is a sign of the tight market underpinning crude oil’s rally that pundits increasingly predict will push the market to $100 a barrel. The increase has helped prices of ethanol, derived from sugarcane and corn, to increase by 54 per cent this year. In turn, this has pushed up raw sugar prices by 27 per cent.

Bullish ethanol outlook

Robin Shaw, Managing Director of London-based Marex Spectron that trades in energy and other commodities, said the world needs maximum sugar, which needs to stay 200 points above ethanol. “Given the bullish outlook for ethanol, its parity will be above 17 cents,” he said.

Salamon said Brazil’s sugarcane production next year would depend on the weather over the next six months. “My prediction for sugarcane production is 520-560 million tonnes (mt) and sugar production is even worse to project. Prices will depend on ethanol parity and energy situation,” the Wilmar analyst, who correctly predicted Brazil production this year, said.

On the energy front, he pointed to Petrobras statement that it would not be able to meet “atypical demand” from fuel distributors in November since it has surpassed its production capacity. This has raised fears of supply shortages in Brazil.

Earlier this week, the Brazilian oil firm said it has received orders way above previous months. “Energy prices will be a strong driver (of ethanol and sugar prices) in the years to come,” the Wilmar official said.

More woes for Brazil

Salamon, responding to questions from Ravi Gupta, AISTA Export Committee Chairman, said Brazil would have another difficult crop year since its cane fields have aged and recovery was weak besides weather risks. On the other hand, fuel consumption has recovered with economic growth and most economies vaccinating their citizens.

Shaw said he did not know what would bring speculators to bet on New York raw sugar over the next 4-5 months since many fund managers have already gone long.

Also read: Indian sugar exports face 3 challenges, says Food Secretary

Brazil Centre-South province crop was projected at 32 mt and there were other such strong exciting price drivers. “High ethanol parity, La Nina problem and what China needs to do (to import sugar) all point to higher prices. Sugar has a tendency to exaggerate and could rule at 21-22 cents in line with ethanol,” the Marex Spectron official said, adding that any unexpected event could push sugar prices higher.

‘No cherry picking’

Gupta said the Indian sugar industry should not wait until the last minute and cherry pick its export deals. “Industry should continue to export to achieve the six mt target. In case, the Covid pandemic returns it could affect the industry as earlier. Therefore, the industry should make use of the high export prices,” he said.

Rahil Shaikh, MEIR Commodities India Pvt Ltd Managing Director, said the Centre wanted the sugar industry to be self-sufficient and hence it was promoting sugar exports and ethanol production.

Also read: Sugar mills would face extinction like textile mills in Mumbai, warns Sharad Pawar

He said soft commodities would now become the target of food versus fuel duel but a sustainable export model that ensures regular sugar exports and ethanol production were the key factors to ensure the industry’s balance.

Meanwhile, industry sources said the sugar market could turn a little tricky after March since supplies may not be able to meet demand. High crude oil prices will be another factor that could push sugar prices up, they said.

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