Sugar prices are tending to rise in the global market on concerns over a couple of developments in Brazil. This could help drive exports of sugar exports from the country if the trend continues.
Though initial projections for the current season that began this month have pegged supplies higher than demand, rains and currency movements could change the market scenario.
During the weekend, sugar prices in the global market rose to a three-month high as rains in Brazil’s Centre South raised concerns over production. Additionally, Brazil has approved a six per cent hike in prices of gasoline, encouraging production of more ethanol.
Higher production of ethanol will cut sugar production, in turn, driving up prices.
White sugar in London was quoted at $508.90 a tonne and raw sugar ended at 18.72 cents a lb during the weekend.
A report by Rabobank last week said that rising global prices and a week rupee could boost exports from India this season.
On the other hand, it said that the scope for sugar prices to rise globally is limited next year as supplies are likely to exceed demand again.
According to Rabobank preliminary projections, global surplus of raw sugar is likely to be 5.4 million tonnes (mt), while the global stocks-to-consumption ration is expected to increase.
A volatile currency market, resulting from the US Federal Reserve’s plan to phase out its $85-billion-a-month stimulus package, will also impact sugar prices, which are dollar-denominated. Rabobank analysts Andy Duff said that global surplus, however, will be lower than 9.9 mt projected for 2012-13. “It implies a further build-up of global stocks during 2013-14 and a further increase in the global stocks-to-consumption ration. Together, these factors will mean prices will remain under pressure,” he said.
However, the global surplus will depend on production in Centre South Brazil with a wet weather during October-November likely to result in cutting down of expectation of sugar production and availability.
Rains have also slowed progress of Russia’s beet harvest, raising concerns over production estimates and import requirements for the next season. Such uncertainties could result in a marginal risk premium for 2014 sugar prices. “Unless the fundamental picture changes drastically over the next few months, any upside for world raw sugar prices appears limited,” said Duff.
Liberalisation of sugar market by the European Union in 2017 will see limits for production lifted. Sugar production is expected to increase in the European Union, inducing competition between producers.
Currency weakness is also likely to help Australian growers, said Rabobank.