Vilified sugar has best rally in years

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

London’s Sugar Week kicked off on Monday last week 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 farther.

The cautious outlook is mainly down to India. Following a bumper harvest, the No. 2 producer is expected to increase exports, more than offsetting cutbacks in output elsewhere and ensuring yet another year of global surpluses. That’s happening as health concerns are curbing appetites 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. Sugar’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:

World supply will outpace demand by 6.4 million tons this season, after a surplus of about 12.1 million tons 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.