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Supply tightness boosts sugar futures but for how long?

August 24, 2020

2 mins read

Sugar futures prices at the InterContinental Exchanges (ICE) in New York and London have continued to rally since mid-July, increasing week-on-week (w-o-w) over the ensuing five-week period. At US$ 294/MT and US$ 379/MT, the respective benchmarks reached the highest levels recorded since late Q1 2020. Current price firmness is supported by expectations of a tighter-than-anticipated global market. The USDA anticipates Thai sugarcane output to fall by up to 20% year-on-year (y-o-y) in 2020 due to pervasive drought, equating to approximately 4.7 million tonnes (mnt) of refined sugar.


Reuters reports a spike in Chinese import in July, China being the second-largest sugar importer, typically accounting for 5-10% of global trade. Indeed, China imported 310,000 tonnes of the commodity in July, representing a 28% y-o-y spike. Year-to-date figures show China imported 1.56 mnt of sugar in the first seven months of 2020, representing a 3.5% y-o-y uptick. Based on these numbers, Mintec envisages Chinese sugar exports to end 2020 around 4.24 mnt, compared to 4.05 mnt estimated in 2019.


However, Mintec does not expect improved Chinese demand against a Thai supply shortfall to provide a sustained price impetus, and the recent upturn is likely to be short-lived. While weather-disrupted supply in south Asia presents some upside price risk, market expectations of a record harvest in top-producer Brazil is expected to more-than offset any shortfalls elsewhere. Based on current production and crop forecasts for 2019/20 and 2020/21 (pro-rated to 2020), Mintec expects Thai sugar output to fall by around 5.3 mnt y-o-y in 2020 to 8.1 mnt, while Brazilian output is predicted to increase by approximately 7.3 mnt y-o-y to 37.1 mnt.

Additionally, Brazilian mills are expected to increase the ratio of sugar produced from sugarcane at the expense of ethanol production during the next year, adding further supply, during a period of demand and logistical uncertainty. Thus, high global inventories present the key downward price risk during this period of sluggish demand.

Ibi Idoniboye
Ibi Idoniboye

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