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Sugar price rebound may be short-lived with global surplus looming

June 9, 2020

1 mins read

Sugar futures on the New York and London exchanges showed upward movement from late-April, increasing by 13% and 16% respectively in the month ending 27th May. The bounce ended a two-month price rundown, where average futures at the London commodities exchange lost EUR 94/tonne ($103/t) from the mid-February peak to settle at EUR 291/tonne ($315/t) in late-April. Several factors are supporting the latest mini-rally, not least a tentative recovery in oil and fuel prices, in addition to demand strengthening, as European markets gradually ease lockdown measures. However, according to Mintec’s research, the market may correct over the next six months with prices exhibiting downward pressure, as more bearish fundamentals come into play.

The US Department for Agriculture’s (USDA) latest outlook for the 2019/20 marketing year predicts a global sugar deficit of 6.1 million tonnes. This would be the largest deficit in at least a decade, potentially supporting a firmer price environment. However, the projection does not factor in the demand-dampening effects of the coronavirus pandemic on global commodities markets, including driving crude and fuel prices lower. As gasoline prices have tanked, the price of bioethanol – used in duel-fuel flex vehicles – has followed suit. This is leading Brazilian sugar mills to convert a higher percentage of domestic sugarcane into raw sugar for refining, rather than towards fuel production. Brazil, the world’s top sugar producer and exporter, is widely anticipated to reap a record harvest this year of 40 million tonnes, with 46% of the cane crop anticipated to be processed into sugar, compared to 35% in 2019.

While a robust Brazil harvest is expected to swell global stocks in 2020, global demand is projected to decline y-o-y as the pandemic accelerates macroeconomic weakness. The USDA forecast global sugar consumption to shrink by 8% y-o-y (13.5 million tonnes) in 2019/20 before the pandemic, so a larger contraction now seems highly likely, given the current climate. Based on these factors, the possibility of a global sugar surplus and a weakened price environment in 2H 2020 is heightened, as these fundamentals feed into the market.

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Ibi Idoniboye
Ibi Idoniboye

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