Brisk demand is unlikely to propel sugar futures back to the 29-year peak they touched in February as top growing countries prepare for big crops and congestion in Brazilian ports eases. The big vessel line-up at the ports, unprecedented Thai sugar demand and steep US import requirements have driven up ICE raw sugar futures by a third since hitting a trough of 13.00 cents a lb on May 7.
They traded at around 17.5 cents on Friday. "Sugar is available - it's moving it that is the issue," said Sergey Gudoshnikov, a senior economist with the International Sugar Organisation. Appetite for sugar from Asia, Africa and North America has led to a long ship line-up at ports in Brazil, which provides at least 80 percent of the world's sugar at the peak of its harvest in the centre-south in the July/September period.
As the peak of the harvest approaches, ships entering Santos port are having to wait around three to four weeks, rather than the usual 10 days at this time of year to move cargoes out. At the same time, Thailand, the second-largest sugar exporter, made an unprecedented purchase of 74,350 tonnes of white sugar this week from the world market to fill a domestic shortage. Some believe the country could buy more.
"We will have to wait and see whether the shortage is over," said Prasert Tapaneeyangkul, secretary general of Thailand's Office of Cane and Sugar Board (OCSB). "If not we will consider buying more sugar back this year."
BOUNTIFUL SUPPLIES Gudoshnikov said while the congestion in Brazil is creating problems for sugar shipping, there is plenty of supply expected to come through from Brazil, India, and former Soviet and southern African countries. Analysts also pointed to upward revisions in output in India, the world's number two producer after Brazil and the world's largest consumer of the sweetener.
"Upward revisions to India's current season output from 15 million tonnes (of sugar) to close to 19 million tonnes, mean that India needs less sugar imports than previously expected," Macquarie Bank said in a research note. Strong demand from India sent white sugar futures to an all-time high and raw sugar to a 29-year peak in early 2010 before the prospects of improving output erased much of the gains.
According to the ISO, India is likely to export some 500,000 tonnes of sugar in 2010/11 due to rising domestic output. A record cane crop is expected this year from Brazil, the world's largest sugar exporter. It is widely expected to harvest almost 600 million tonnes of cane this season, a rise of around 10 percent over last year.
"Considering the crops that Brazil and India are estimating, I do not foresee us testing the 29-year highs," said Bill Raffety, analyst at Penson GH CO in New York. "We are looking at India going from a net importer to possibly flat or a slightly net exporter."
Prices could get a lift from the United States, which has increased its import quota by 453,500 tonnes this year. But otherwise, analysts say it will take a big external shock, like prolonged adverse weather in Brazil or India, to trigger a run for the 29-year peak.
"The 2009-2010 rally was caused largely by one event, the failed monsoon in India," Sterling Smith, senior market analyst for brokers Country Hedging Inc in Minnesota, said. But he added: "The current monsoon season is faring very well, and any sort of production shortfall seems very unlikely."