Rising Demand Sweetens Sugar Prices

(Wall Street Journal) – Sugar prices are climbing ahead of Islam’s holiest month, when demand for the sweetener rises.

The price of raw sugar, which refiners process to make white sugar for food companies and grocery stores, has pulled up from a six-year low. Some of the buyers are refiners taking advantage of the difference between prices for raw sugar in New York and white sugar in London, said analysts at Commerzbank.

“Demand for white sugar is very robust at present,” the Commerzbank analysts wrote in a note. “This has widened the price gap between white sugar and raw sugar in the past two months considerably, prompting sugar refiners to demand more raw sugar.”

Raw sugar for May, the most actively traded contract, rose 3.4% Thursday to 12.74 cents a pound on the ICE Futures U.S. exchange, while white sugar traded on the ICE Futures Europe exchange was at $367.30 a metric ton, the equivalent of 16.66 cents a pound. The markets were closed Friday.

It’s a turnaround for raw-sugar futures, which have spent much of the past six months drifting lower as a weaker Brazilian currency encouraged exporters in the world’s largest sugar-producing country to sell their product abroad. Raw sugar hit a six-year low of 11.93 cents a pound on Tuesday.

The Brazilian real has regained some ground against the U.S. dollar, removing some of the selling pressure in the raw-sugar market. But James Liddiard, commodity risk-management consultant at Agrilion Commodity Advisers LLC, said demand for raw sugar from refiners ahead of the monthlong observance of Ramadan also pushed futures prices higher.

Considered the holiest month of the Muslim calendar, Ramadan has an early start this year, in June. Many Muslims fast from dawn until sunset and feast each night with sweets for the whole month, increasing demand for sugary treats.

Mr. Liddiard said orders for white sugar from China are also coming in.

In the long term, raw sugar’s rally will be capped by a global glut of the sweetener, analysts said. World stockpiles are at historically high levels, 20% above the average of the past 10 years, Hamish Smith, commodities economist at Capital Economics, wrote in a recent note.

“The fundamental problem facing the market is a global abundance of sugar,” Mr. Smith said.

In the meantime, demand is driving raw-sugar prices.

“Food prices have come down to the lowest level since who knows when, world interest rates are down, and world energy prices are down, so we have the setup for a tremendous jump in consumption here,” said Terry Roggensack, founding principal of the Hightower Report.

“If anything can rally, it’s sugar,” Mr. Roggensack said. “Sugar’s just so beaten up.”