Raw sugar prices finished at a nine-year high on Thursday due to relentless buying by investors betting that supplies will get tight as more cane is funnelled into the production of the biofuel ethanol, brokers said.
The New York Board of Trade's benchmark spot March raw sugar contract jumped 0.49 cent, or 3.9 percent, to finish at 12.92 cents a lb, moving from 12.50 and a new contract peak of 12.96 cents.
It was the highest close for sugar since trading near 13 cents in the middle of 1996. The second position May raw sugar contract climbed 0.50 cent, or 4.05 percent, to end at 12.84 cents, having hit a lifetime peak of 12.86 cents.
The back months on the board gained from 0.50 to 0.54 cent. The price of sugar has more then doubled since the start of 2004 when it was trading just under 6.00 cents and analysts said it will take some time for the sweetener's searing rally to slow down.
"The market just keeps going up. There's nothing stopping it," said James Corridor, an analyst for Liberty Trading Group in Tampa, Florida. The main catalyst for the rally has been the increasing perception that supplies of sugar from leading producer and exporter Brazil will get tight in the months ahead if the country uses more cane to churn out the biofuel ethanol.
The advance has also been stoked by rising consumer demand, the prospect of lower European production because of EU reforms of its sugar regime, drought in key exporter Thailand, and the insatiable appetite by funds controlling large pools of funds to aggressively buy sugar and bloat the number of contracts in the sweetener to an all-time high over 500,000 lots.
According to NYBOT, open interest in the No 11 raw sugar market surged 3,602 lots to 504,174 lots as of November 30. "We should test 13 (cents)," Alex Oliver, the sugar analyst for European brokerage house FIMAT USA Inc, said.
Huge buying by the funds and the absence of selling pressure from producers inspired the market to claw its way ever higher during the session, he said.
Sugar futures opened slightly higher and then funds bought it up, dealers said. Selling by producers, who would normally cap rallies in the market, was virtually non-existent.
Consumer buying of the sweetener has slowed to a crawl because of the stiff rally in the market, analysts said. Corridor said importers will eventually have to decide whether to wait for a fall to buy sugar then or pay now in case the rally does not dissipate and prices keep surging to 13, 14 or even 15 cents.
The volume traded before the market closed for the day stood at 68,103 lots, compared to the previous tally of 43,236 contracts. The call volume hit 14,281 contracts and put volume reached 18,639 lots.
Technicians feel resistance in the March contract, an area where the market could slow down a bit, was at the contract high of 12.96 and then 13 cents.
They pegged support at 12.50 and 12.25 cents. The ethanol market was unthreaded. US domestic sugar prices ended mixed. The January contract sank 0.18 to 21.25 cents a lb and March fell 0.06 to 21.20 cents.
One contracts aside, the rest concluded the day unchanged. The volume done before the end of trade hit 84 lots, from the previous 213 lots.