Commercial Director at SASA
The general market sentiment was reported as being bearish, with the market having lost nearly 600 points since the beginning of the calendar year. This was driven mainly by disappointment in terms of the expected volume of Indian import requirements, as well as increasing estimates of the coming season’s surplus. World market surplus estimates ranged between 2.5 and 7 million tons, with some level of consensus between 3 and 4 million tons. Some analysts warned that anti-sugar lobbies may have impacted consumption globally to an extent not yet recognised in global supply and demand estimations.
No 11 pricing is rapidly approaching ethanol parity, with some analysts predicting that the parity level may be broken through on the back of fundamentally bearish sentiment around sugar.
The impact of tense NAFTA negotiations is assisting to fuel bearish sentiment. On 1 May 2017, the US announced its intent to terminate the Suspension Agreement with Mexico and levy a duty from 5 June 2017 unless a new agreement can be reached. The impact of Mexican sugar on world market trade flows (an additional 2 million tons, mainly refined) is likely to weigh on the world, but could place the protected US market in a very tight supply situation particularly in terms of raws in the short term.
The issue of where pricing could potentially go from today’s levels (15.50 USc/lb) was a topic of much debate. One of the key drivers of price in the medium term is expected to be Brazilian production this season. Lower sugar premiums may drive producers to favour ethanol production. For mills far from ports in Brazil, ethanol may already be more lucrative than sugar (parity pricing for anhydrous ethanol is currently approximately 14.40 USc/lb). Some producers warned that production for Brazil may be overstated, with aged cane due to low renovation yielding less sugar in spite of good weather conditions. Speculator activity is also expected to play a key role. The record net spec short position was achieved in March 2015 (132 479 lots). The current net short position is in the region of only 20 000 lots.
In other producer news, Australian sugar production is expected to be 300 000 tons of sugar lower (4.8 million tons total) as a result of cyclone Debbie-related losses. With consumption stable at 3.7 million tons, exports are expected to be reduced by the reduction in production.
Chinese raws demand is set to pivot on a government decision expected in May to hike the duty rate for imports. This move is likely to spark renewed cross-border trade from Myanmar and Vietnam.
In terms of India, there is still quite widely held anticipation of further raw or white import quota announcements, following the disappointing announcement in April of only a 500 000 ton quota for raws. Even with a normal monsoon season expected, 2017/2018 season production may not be sufficient to meet growing consumption in India.
Wet and cold conditions have hampered the start of beet sowing in some parts of the EU. By mid-May, sowings should be largely complete, and the European Commission estimates planted areas are expected to be at least 17% higher year-on-year, in anticipation of quota abolishment in October 2017.
With bearish news dominating the headlines, and a global surplus of production looming, news of significant changes in terms of weather impacting key producers or major changes in speculator activity may be factors to watch going forward.