International sugar prices are sluggish amid reports of higher sugar production in Brazil. On Wednesday, July NY World Sugar #11 fell by 1.17%, and August London ICE white sugar #5 declined nearly 2%, continuing a slump that began earlier in the week. On Tuesday, NY Sugar posted a 1-1/2 year nearest-futures low, and London sugar dropped to a 1-1/4 year low.
Dr. Claudiu Covrig, Founder and Senior Analyst, CovrigAnalytics, said that the extremely high sugar mix reported by Unica on H2 April figures is an important factor behind the sluggish prices. He noted that the sugar mix reported by Unica for the latter half of April was 48.37%, higher than his projected 47.4%, thanks to dry weather aiding the cane harvest. “If the weather keeps favourable, the market might come down further as NY11 only relies now on Brazil,” he said.
He estimates NY11 price at 18.0-18.5 c/lb for Jul contract, 17.0-17.5 c/lb for Oct contract (anywhere between Jul-Sep), 19.0-19.5 c/lb by Dec and 20.5-22 c/lb for Mar-May NY11 (when Brazil will have very low seasonal stocks).
Covrig feels that the second half of the Brazilian crop might throw some surprises as the impact of dryness will be mainly seen at the tail of the crop. “Can we see a sudden death? Or healthy rains will delay crushing and leave plenty of cana bisada (outstanding cane left in the fields to be crushed early next season) in the fields? These are two crucial questions that only time can answer”, he opined.
Covrig said that massive buying is expected at 18.0-18.5 c and is already happening. China has already confirmed buying more keeping the buying spree intact. According to the market, more than 350 k mt of AIL out-of-quota sugar is booked in the last 2 days (now many are buying in China).
However, he warned against relying on one country to cater to sugar demand, as there might be reports of frost incidences in Brazil in June and July, which is detrimental to cane crop. There could be issues related to port infrastructure also, which was witnessed at the beginning of the year.
On investors buying sugar, he said that they just magnify and amplify the market sentiment. “If prices manage to spike above 20-20.5 c/lb they will cover shorts and move in a net long position again! On the other side if we break the 18 c/lb floor they could push prices further down. Still there is a reality check here: only Brazil is profitable at these levels. Indian production costs for raws on FOB is above 20c/lb and nobody will export at these levels, they need a healthy cash premium on top of it”, Claudiu said.
On India, the analyst said that this calendar year there will be no official exports out of India (except the sugar tolled by refineries/mills). He said that during the week, ISMA reported that Indian sugar production totalled 31.373 mil mttq at the end of Apr, down from 31.912 mil mttq reported at the same time last year.
“This implies a total sugar production for 2023-24 at 31.5-31.8 mil mttq, down from 32 mil mttq expected after the previous official report released,” Claudiu concluded.
