Sugar prices ease, amid talk of ‘limited’ demand

March 12th, 2014


Category: Sugar

(AgriMoney) – Sugar prices eased amid talk of higher values encouraging the release of extra supplies, at a time when demand in the key market of Brazil has proven “limited”, with buyers viewed as having ample supplies.

Sugar for May stood 1.5% lower at 17.94 cents a pound in New York.

The fall came despite continued dryness in central Brazil, a major producing area for coffee and orange juice as well as sugar – and, indeed, contrasted with a 1.7% increase to 207.15 cents a pound in New York arabica coffee futures for May.

May coffee earlier hit 208.90 cents a pound, the highest for a nearest-but-one contract since February 2012.

However, while data overnight from Cecafe showed Brazilian coffee exports soaring 28% year on year in February, to 2.52m bags, and the coffee trade association expects full-year shipments to rise to 33m tonnes from 31.1m tonnes last year, evidence of demand for sugar has proven more downbeat.

‘Limited demand’

“Demand for additional crystal sugar volume remained limited in the spot market in Sao Paulo during February,” said Cepea, the market research institute linked to Sao Paulo University.

Industry sources said that supplies agreed through existing contracts were “enough to meet needs”.

“As a result, trades in the spot market involved smaller volumes compared to those in January – only a few trades involving higher amounts were closed,” the institute said.

In fact, Sao Paulo prices of crystal sugar – a popular Brazilian grade more processed than raw sugar but less than white sugar – rose 3.1% to R$51.49 ($21.99) per 50-kilogramme bag, equivalent to about R$1,030 ($440) per tonne.

Raw sugar futures rose 5.9% last month in New York, on a spot contract basis, and while London white sugar futures gained 12.3%.

Higher Brazilian prices now meant that mills – albeit now in a seasonal shutdown – would earn 10% more for turning cane into sugar rather than anhydrous ethanol, and 12% more than making hydrous ethanol, Cepea said.

Supply-demand dynamics

Separately, Marex Spectron flagged the impact of higher sugar prices in raising supplies, in part through encouraging cane processors to produce sugar rather than ethanol.

“In Centre South Brazil, we will gain about 2.5m-3.0m tonnes of extra sugar production as the ethanol/sugar mix will go to its maximum of around 50.5:49.5%, compared with last year’s 54.5:45.5%,” the London broker said.

In China, world sugar prices were “now far above” domestic values, meaning that “if prices stay here or go higher, Chinese imports, which were expected to reach 2.5m tonnes this year, will fall to about 1.5m tonnes”.

“In India, we will gain about 1m tonnes of extra exports.”

Sugar prices should “at some stage gravitate back” to about 17.00-17.50 cents a pound, a level Marex termed an “equilibrium point”, where Chinese imports become viable, and Indian exports unprofitable.

However, higher prices were possible later on, to encourage output and “cure” the world sugar production deficit foreseen for 2015.

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