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News
World sugar market balance shifts, adds pressure to prices
Date:
30 Nov 2016
Source:
The Business Standard
Reporter:
Reuters
News ID:
6195
Pdf:
Nlink:
Sugar's two-year global supply short-fall, a key factor behind blistering price rises, is expected to end in 2017/18, with rain returning to major Asian producers while European Union reforms will boost production in the trading bloc.
"The end of the deficit period is already clearly visible," F.O. Licht analyst Stefan Uhlenbrock told a two-day seminar hosted by the International Sugar Organization which concluded on Wednesday.
Raw sugar prices more than doubled to a peak of 23.90 cents a lb in October, from as low as 10.13 cents in August last year as investment funds built up a record net long position against the backdrop of shrinking supplies.
The run-up has started losing momentum however as crop news turned positive. Prices had dipped below 20 cents a lb this week as funds scaled back long positions.
"A bull needs to be fed constantly to put on weight and the same can be said for a bull market. For the time being the sugar market has run out of fresh bullish news and that is the reason for the decline we are seeing," Uhlenbrock said.
Uhlenbrock forecast there would be a more balanced market in 2017/18 and possibly even a modest surplus after deficits of 9.9 million tonnes in 2015/16 and 6.2 million in 2016/17.
The deficits have been driven partly by an El Nino weather event that led to droughts in parts of south and south-east Asia including major producers India and Thailand.
In India, consumption is set to outstrip output for the first time in seven years in the 2016/17 season as back-to-back droughts ravaged cane crops in the top producing western state of Maharashtra.
Abinash Verma, director general of the Indian Sugar Mills Association, said on the sidelines of the seminar that rains had returned in September and production should rise in 2017/18.
"Only to talk about Maharashtra we could be talking about another five million tonnes of sugar (in 2017/18)," Plinio Nastari, president of consultants Datagro, said, adding production could rise to 10.0 million to 10.5 million tonnes from the prior season's 5.5 million.
Nastari also said production should rise in the EU, Thailand and Brazil.
"We see the possibility of a more balanced scenario," he said, noting there could be a modest surplus of up to 2 million tonnes or a small deficit of up to 1.5 million.
Major sugar exporter Thailand experienced its worst drought in more than two decades earlier this year because of the El Nino weather pattern.
"This year Thailand has produced 9.4 (million tonnes of sugar). Next year it could be 11.0 or 11.1 (million)," Nastari said. "These factors are conspiring against the deficit."
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