Traders see two years of sugar surplus

Published: 02/02/2018, 4:07:23 PM

The world sugar market is set for a larger surplus than previously expected in the 2017/18 season, followed by another year of oversupply, according to a Reuters survey of 12 traders and analysts.

Sugar prices are seen remaining roughly unchanged in the first quarter of 2018 and recovering slightly by the end of 2018, though still posting a yearly decline.

Spot raw sugar prices are expected to finish the quarter at 13.35 cents per lb and to end the year at 14.5 cents, up 8.5 percent from Thursday’s close but still down 4.4 percent on the year, according to the median estimate of 12 survey responses.

White sugar futures are seen ending the quarter at $355 a tonne and ending 2018 at $367.50, up 3.3 percent from Thursday’s close but down nearly 7 percent year on year.

Benchmark prices have already lost about a third of their value in the past year on an expected surge in production.

The world sugar balance sheet is poised for a surplus of 8.2 million tonnes in the current 2017/18 season, according to the respondents.

This is nearly twice the 4.3 million tonne surplus forecast for 2017/18 in a Reuters poll issued last July.

A second consecutive season of excess production is expected in 2018/19, with the surplus forecast at 5 million tonnes.

Potential for Indian exports to the global market are expected to be a key factor in the market, respondents said. Indian output was seen at 26.5 million tonnes in 2017/18 and 29 million tonnes in 2018/19.

“Towards the end of 2018, the subject of Indian exports are likely to be back on the agenda in response to significant stock building and likely pressure on domestic prices,” said John Stansfield, analyst at Group Sopex.

Brazil, meanwhile, was seen producing less sugar and the possibility of mills allocating more cane to ethanol was outlined as one of few potential bullish factors for the year ahead.

The country’s Centre-South (CS) cane region is expected to produce 587.5 million tonnes of cane in 2018/19 and to allocate 41.5 percent of it towards sugar. Total output of the sweetener was seen at 32.8 million tonnes.

“In Brazil CS, ethanol will be the main factor, as the mills will focus production in it,” said Bruno Lima, head of sugar for INTL FCStone in Brazil. “However, bigger crops around the world (such as in Thailand, India and the EU) will be the weight on the other side of the scale.”

China’s sugar import policies were also seen as a key factor in 2018 after reined in its out-of-quota permits last year and imposed hefty tariffs on foreign shipments, though some of this is believed to have been partially offset by smuggling.