Thai raw sugar prices are expected to find support in the first half of 2020 due to a pickup in demand from key buyer Indonesia, whose stocks are running low after the number of import licenses were slashed this year.
This comes after a bumper crop and weak regional demand pressured Thai cash premiums in the previous marketing year, although recent trades indicate that the uptick for 2020 is already underway.
A stronger Thai cash premium is already building with next year's March-May 15 loading cargoes rising by close to 70% since the beginning of October at 84 points over the New York No. 11 March futures.
Similarly, cash premiums for May-July 15 loading cargoes were also firmer at 84 points over the May futures, higher by over 60% since October 1.
Earlier this year, the Indonesian government announced that industrial raw sugar import permits for 2019 would be reduced by 22% from the previous year to 2.8 million mt.
Thai raw sugar exports to Indonesia has declined by close to 18% on the year to 2.69 million mt for the January-October 2019 shipment period, data from the Thai Sugar Milling Corporation showed.
Indonesia is the top importer of Thai raw sugar and accounts for approximately 70% of total Thai raw sugar exports.
Trade sources noted that domestic stocks in Indonesia are expected to fall 10%-15% year on year amid weaker imports and a reduction in the issuance of additional licenses, which could potentially prompt the government to issue more licenses in 2020.
"The Indonesian government released 400,000 mt of last-minute licenses only in late-November and December, which indicates that the country is short of sugar," an analyst told S&P Global Platts.
He added that stronger expected demand from Indonesia in first half of 2020 and lower sugar production in Thailand would support prices, outweighing the fact that Thailand is expecting a large carry-over stock of over 1.5 million mt from the previous season.
Adding to the strength of the Thai cash premiums is market expectations of a smaller sugar cane output in Thailand for the current marketing season (October 2019-September 2020), which will also support new crop values next year.
A stronger Thai raw sugar cash premiums for new crop is evident in the most recent Thai Quota B tender on December 5, where premiums gained by close to 50% compared with October.
The drought and weak monsoon in Thailand's major cane producing regions during the crucial growing season would also lead to slower cane development and a reduction in sugar yield, trade sources said.
As a result, the cane crushing season, which usually happens between mid- and end-November, was delayed to the start of December this year.
"Central Thailand will only start crushing in mid-December because of the poor development of cane crop, while northeast Thailand will start crushing at the start of December," a Thai-based agronomist told Platts.
A survey conducted on trading houses and analysts showed a lower estimation of cane production between 100 million to 110 million mt, with the median at 108 million mt, down 22% compared with the previous season.
Another factor that producers would be watching closely is the Thai white premium environment -- the price difference between flat price of Thai 45i refined sugar and HiPol raw sugar.
China's stricter enforcement on cross-border movement of sugar from Taiwan and Myanmar had a knock-on effect of weakening demand for Thai refined sugar, which would continue to put pressure on Thai white premium in 2020.
The average Thai white premium in 2019 was $53/mt, down 23% year on year, compared with $73/mt in 2018, Platts data showed.
White and refined sugar exports for January-October dipped 9.2% on the year, while raw sugar exports fell by 4.5%, TSMC data showed.
"If China continues to control the smuggling flow, this would negatively affect the white premium. Producers would then focus on raw sugar sales rather than refined sugar," a Singapore-based trader said.
While Indonesia has typically sourced most of its sugar requirements from Thailand and Australia, moves are currently underway to boost imports from India amid bilateral efforts to export Indonesian palm oil to India.
Currently, Indonesian regulations allow the import of raw sugar with a minimum ICUMSA , or International Commission for Uniform Method of Sugar Analysis, level of 1,200.
The government is looking to reduce the minimum ICUMSA to 600 in order to meet the color and quality requirements of Indian raw sugar. Typically, Indian raw sugar has a 400 to 800 ICUMSA level.
Although the policy change could potentially alter raw sugar trade flows from India to Indonesia, several traders were skeptical that the policy change would happen anytime soon.
Market sources noted that there are no trade discussions reported between India and Indonesia at the moment, and that Indonesian buyers will likely continue to be a major buyer of Thai raw sugar in first-half 2020.
"Another factor for India to export raw sugar would depend on the [global] price. If prices remain low, mills would rather just sell in the domestic market," a trade analyst said.