Sugar May Rally as ‘Weird Weather’ Tightens Supply
Raw sugar may extend gains from a five-month high as adverse weather lowers output in countries including Russia and China and as a logjam in Brazilian ports slows exports from the top producer, broker Kingsman SA said.
“We have very low stocks of sugar around the world and we have a number of weather problems that are threatening to affect production,” Managing Director Jonathan Kingsman said today in a telephone interview from Lausanne in Switzerland. “It’s a combination that’s making people bullish.”
Prices have jumped 54 percent from a 13-month low reached on May 7 on signs that damage from drought in Russia and floods in Pakistan would spur imports. Russia said last week its output may be 20 percent smaller than forecast and Pakistan said Aug. 16 it may start buying raw sugar by December to make up for the deficit. Production in Indonesia, Southeast Asia’s largest buyer, may miss a target due to heavy rain, the government said Aug. 19.
“The weather is weird all over the place,” said Kingsman, who’s hosting a conference next week in New Delhi. “We have terrible floods in Pakistan, a mix of floods and dry weather in China and wet weather in Indonesia. If the problems get worse, then the market could explode on the upside.”
Raw sugar for October delivery was unchanged at 19.97 cents a pound on ICE Futures U.S. The price touched 20.07 cents on Aug. 20, the highest level for a most-active contract since March 11. White sugar for October delivery climbed as much as 0.8 percent to $580 a ton in London, the eighth consecutive gain.
Fund Buying
“If the price holds above 20 cents you could see some of the biggest funds come and buy,” Kingsman said. Those purchases “could push it further but it’s difficult to say how high. The price may fall to 17.5 cents if weather problems are resolved.”
Hedge-fund managers and other large speculators increased their net-long positions in New York sugar futures in New York by 6.6 percent in the week ended Aug. 17 from a week earlier, according to U.S. Commodity Futures Trading Commission data.
Vessels waiting to export sugar from the ports of Santos and Paranagua in Brazil’s Center South numbered 113 as of Aug. 19, down from 128 a week earlier, according to Santos Associados Consultoria Ltd., a research firm in Brazil.
“Refineries and importers have run down stocks globally and they’re all trying to restock at the same time. That’s what is causing this traffic jam in Brazilian ports,” said Kingsman. “Brazil is the main supplier. The demand is pretty exceptional at the moment.”
Futures more than doubled last year after excess rainfall in Brazil and a weak monsoon in India crimped production.
‘Good Prices’
India’s output may be 25 million tons in the year starting Oct. 1, more than the annual demand of 23 million tons, Kingsman said. Exports may be 2 million tons, comprising mainly white sugar, if “world prices are good,” he said.
His production forecast is less than the 25.5 million tons predicted by the Indian Sugar Mills Association and as much as 28 million tons estimated in July by Bajaj Hindusthan Ltd., the nation’s top producer.
“If Indian production is higher, you will see the country exporting next year,” Kingsman said. “There is unfilled demand in Indonesia and the Philippines. Chinese buyers may buy again if prices weaken to rebuild stocks. The situation in Asia is very, very tight.”
Refined sugar’s premium over raw sweetener may stay “very strong” if India doesn’t supply, said Kingsman, who correctly forecast in May that the white sugar market will stay in deficit this year even as raw-sugar output expands. The premium was at $136.5 a ton, a two-week high, at 10:32 a.m. New York time, data on the Bloomberg shows.
“The only thing that can stop the market going higher is the Indian situation,” he said.
The government may allow export of as much as 200,000 tons lying at ports, Farm Minister Sharad Pawar said Aug. 12. India last sold sugar in the 2008-09 season and has been regulating exports since Jan. 1, 2009, to improve domestic supplies.
To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.
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