Tag Archives: white sugar

ICE’s plans for white sugar futures

October white sugar futures closed $16.50 lower at $483.70 per tonne. While December futures declined $15.80 to $473.00 per tonne.

Reports indicated that Intercontinental Exchange (ICE) the new owner of the London white sugar futures contract may offer container delivery which would be more in line with a growing trend in the industry. The white sugar futures contract currently only accepts deliveries in bulk vessels,  This is seen by some as unrepresentative of the market given current growth in container trade which is for many becoming the preferred method of transport in the physical sugar market.

Also on the cards is a possible launch of a new refined sugar contract for ICUMSA 150 which is a lower grade of refined sugar compared with ICUMSA 45 and would better reflect sugar delivered originating in Brazil, India, Thailand and Palistan.

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Brazil’s ethanol in demand at the expense of sugar production.

Brazil’s forecast for the 2012/13 cane crush is unchanged at 512 million tonnes of cane and 31 million tonnes of sugar according to Datagro.  These figures are for center south production of between 545 and 575 million tonnes of sugar cane.  The price and demand for gasoline will determine sugar output in the coming season with U.S. demand for ethanol a possible reason for increased ethanol output in Brazil as opposed to sugar.  The U.S. is likely to import 2.5 billion litres of Brazilian ethanol up from 1.5 litres.

Dry weather resulted in Brazil’s 2012/13 sugar forecast being reduced by 1.5 million tonnes in September due to dry weather and lower yields.  Gasoline prices and U.S. demand for ethanol are variables likely to be monitored for further changes to forecasts.  Also being monitored is a possible decision by Brazil to increase the ethanol content in gasoline from 20% to 25%.  This would increase ethanol production at the expense of sugar production.

The increased demand for Brazilian ethanol described above would account for approximately 35 million tonnes of sugar cane. Hence an equivalent reduction in sugar production may be anticipated.

Sugar surplus puts downward pressure on prices

Surplus sugar continues to put downward pressure on prices as the Brazilian harvest gathers pace in the world’s largest exporter.  While Thailand is expected to export in excess of 7.5m tonnes in its 2012/13 season down slightly from last year.

The nearest month October raw sugar contract closed at 20.42 cents per lb while December white sugar closed at $574.50 per tonne.

World Sugar Outlook 2012

A consensus of analysts see sugar prices falling during 2012 with the world sugar surplus seen at just under 8 million tonnes in 2011/12 and falling to just over 3 million tonnes in 2012/13.  This is somewhat dependent on whether output will fully recover in the world largest producer Brazil, the amount of cane diverted to produce ethanol and exports from India.  Nevertheless, the surplus for 2011/12 creates a likely bearish market during 2012.

A fall in sugar prices may result in Brazilian millers diverting sugar to ethanol production.  Large harvests in Europe, India and Thailand have resulted in a higher world surplus.

It is believed that Brazil’s production will not recover significantly as the lower production figures are not due to weather or the amount of cane diverted to ethanol production but mainly due to older rations and lower yields.  Therefore, investment is required for an increase in yields and higher Brazilian production.

Raw sugar prices are forecast at around 22 cents during the second quarter during the Brazilian centre south harvest and at around 24 cents at the end of 2012.  White sugar is forecast at around $600 during the second quarter and around the same at the end of 2012.  Weather patterns could alter this forecast price projection.

The weather phenomena La Nina and El Nino are factors potentially impacting sugar supply.  La Nina tends to result in drier weather in the centre south of Brazil thereby delaying crops, harvesting and crushing.  El Nino which follows La Nina after the second quarter gives wetter conditions potentially impacting sucrose content.    La Nina also results in heavy rains, flooding in the Asia-Pacific region and occasional drought in Africa and South America.

White sugar is currently trading around $626.50 and raw sugar at 24.62 cents.

A major factor determining sugar prices during 2012 will be the price of ethanol and as a consequence the decisions by Brazilian mills to divert cane to ethanol production.  The ethanol parity is currently around the 20 cents a pound for raw sugar.  Below this raw sugar price mills would be expected to convert cane to ethanol and not to sugar.

Sugar price and surplus forecasts indicate price falls

A consensus of forecasts from leading market sources for sugar prices at the end of 2011 indicate a mean forecast for raw sugar of 25.19 cents per pound with the highest being 31 cents and the low forecast being 21.50 cents.  The forecasts for white sugar at the end of 2011 indicate a mean of $670 per tonne with a high forecast of $800 and a low of $562. The forecast for the global sugar surplus for the 2011/12 season is a mean of 6.35 million tonnes with a high forecast of 9 million tonnes and a low of 3.5 million tonnes.

The forecasts indicate that sugar prices may be trending lower over the next few months.  The forecasts were obtained in mid July 2011. A weaker U.S. dollar and UNICA announcing in July that Brazil’s center south sugar cane crop is likely to be down by over 6% or 35.5m tonnes due to bad weather and older ratoons resulted in sugar prices soaring with white sugar reaching a record $890 per tonne and raw sugar hitting a 4 month high of 31.33 cents per pound. 

Sugar production is expected to decrease by slightly more than 2 million tonnes with slightly less sugar than expected being diverted to ethanol production due to higher margins from current sugar prices.

Brazil likely to lower ethanol mix in gasoline adding to sugar supplies

Brazil may announce that it is lowering the percentage of ethanol required to be mixed in gasoline.  The primary source of ethanol in Brazil is from sugar cane and if the requirement for 25% ethanol is eased to 18% this would free up sugar supplies that would have otherwise been diverted to ethanol production.

Sugar futures declined on the news. The news follows a reported drop in cane production in Brazil’s center south due to older ratoons and lower yields.

 

Indonesia fails to buy sugar by tender

Indonesia’s  state sugar buyer PT Perkebunan Nusantara X has failed to buy over 40,000 tonnes of white sugar by tender on more than one occasion.  State buyers are granted permits to import white sugar to make up expected deficits arising from lower domestic production.  State buyers are tasked with buying 450,000 tonnes but so far have only managed to buy approximately 10% of this quota.