Raw sugar prices fell below 12 cents/lb in early August and stayed there for most of the month. The No. 11 currently sits around the 11 cents/lb mark (basis October).
Recent drivers of the price have included macro developments such as the decline in the Real (resulting from weakened emerging market currencies in the wake of the China/US trade dispute), lower oil prices, a strong net short position and confirmation of the Indian export subsidies. The weaker Real and lower oil prices have been negative for ethanol parity which has fallen back to around 12 cents/lb and sugar has been suppressed as a result. In contrast Thailand experienced a strengthening currency which in turn placed pressure on Thai exporters looking to export sugar.
Other factors are weak Chinese import demand and a low white premium which means that offtake of raws by refiners is subdued. While the details of the Indian export subsidy remained to be worked out, US$ 146/t is being made available on 6 million tonnes of exports. A No. 11 price of 13-14 cents/lb is needed to make these exports viable. Another development in India is the Government’s announcement of an increase in the price of ethanol from cane juice and B molasses which could divert some cane away from sugar going forward.
Meanwhile Brazil has been producing relatively little sugar with production down 6% (1 million tonnes) relative to this time last year. The C/S cane crop is projected at around 580 million tonnes and a final sugar figure in the 25-26.5 million tonne range is expected.
All of this will bring pressure to bear on the October contract with prices remaining stubbornly in the 11.5 -12.5 cents/lb range.
Analysts are still expecting a global production surplus in 2018/19 of 1.5 million tonnes and anticipate a projected deficit in 2019/20 of around 5.5 million tonnes. Meanwhile the trade balance looks positive in 2020 with some Indian sugar being needed in early 2020.
A weak premium of US$ 55-60/t characterised the market in August and it currently sits around US$ 62/t with a No. 5 price of US$ 303/t (basis October).
The potential for large scale Indian exports and weak Chinese import demand is keeping a lid on the market, at least in the short term.