Lit­tle love for sugar even with one of the best ral­lies in years

Gulf Times Business - - BUSINESS -

Sugar’s big­gest rally in a decade isn’t con­vinc­ing many of a sus­tained turn­around for the worst com­mod­ity in re­cent years.

Lon­don’s Sugar Week kicked off Mon­day on the back of raw sugar’s best weekly gain since 2008, a surge driven by a stronger cur­rency in top pro­ducer Brazil. But it’s still one of this year’s worst per­form­ers, and there was lit­tle con­sen­sus among traders, bro­kers and an­a­lysts gath­er­ing in Lon­don that prices will climb much fur­ther.

The cau­tious out­look is mainly down to In­dia. Fol­low­ing a bumper har­vest, the No 2 pro­ducer is ex­pected to boost ex­ports, more than off­set­ting cut­backs in out­put else­where and en­sur­ing yet an­other year of global sur­pluses. That’s hap­pen­ing as health con­cerns are curb­ing ap­petite for sugar, led by de­clin­ing or stag­nant con­sump­tion in western mar­kets.

“I am not con­vinced that there is light at the end of the tun­nel,” John Stans­field, a trader at Group Sopex SA, said at a Marex Spec­tron Group sem­i­nar in Lon­don on Tues­day. “The ele­phant in the room is def­i­nitely In­dia.”

Ex­tend­ing a re­bound from a decade-low set in Au­gust, raw sugar ral­lied for eight straight days through Tues­day as a stronger real re­duced the ap­peal of Brazil­ian ex­ports. The sweet­ener’s gains have since slowed a bit amid signs it has be­come over­bought, with fu­tures trad­ing at about 13.02 cents a pound Thurs­day.

Here are some key fac­tors for sugar:

Too much sugar: World sup­ply will out­pace de­mand by 5.8mn met­ric tonnes this sea­son, fol­low­ing a mas­sive sur­plus of 11.8mn tonnes a year ear­lier, ac­cord­ing to Sopex. Much of that is down to large pro­duc­tion in coun­tries like In­dia and Thai­land, and there’s now no limit on Eu­ro­pean out­put af­ter quo­tas were scrapped in 2017.

In­dian im­pact: In­dia will be key go­ing for­ward, and is ex­pected to col­lect an­other record har­vest. To help strug­gling mills and cut a do­mes­tic glut, In­dia will al­low 5mn tons of ex­ports this sea­son, which Green Pool Com­mod­ity Spe­cial­ists says would be an un­prece­dented amount.

“In­dia has been a hot topic all this week,” Tom McNeill, a di­rec­tor at Green Pool, said in an in­ter­view on Mon­day. “The mar­ket would be in a deficit if it weren’t for In­dia. Ul­ti­mately, a lot will de­pend on how In­dian millers ex­e­cute the deals, how the govern­ment fol­lows up with sub­si­dies and how the global mar­ket re­acts.”

Brazil leads curbs: Still, there are signs of pro­duc­tion cut­backs as re­finer­ies in Chile to Syria close amid more out­put in Europe, ac­cord­ing to Sopex. The de­clines have been sig­nif­i­cant in Brazil, where dry­ness has hurt crops and mills have di­verted cane to make more prof­itable ethanol. Brazil’s main grow­ing re­gion is poised to re­duce out­put by 25% this sea­son, in­dus­try group Unica said.

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