Refined sugar’s premium over the raw variety, which climbed to a record last week, may plunge as much as 33 percent by the fourth quarter as Brazil, the biggest exporter, increases production, Newedge USA LLC said.
The premium may drop to between $110 and $130 a metric ton, from a record $164.86 a ton on May 24, as a slump in prices for the raw variety attracts buyers and reduces demand for white sugar, Michael McDougall, who leads the Brazil sales team at Newedge, said in an interview.
“Some countries will be buying raw sugar because of the high cost” of the refined type, McDougall said yesterday in Singapore. “White premiums will have to come down.”
The gap widened to an all-time high last week as Pakistan, Asia’s second-biggest buyer, increased refined imports to meet domestic shortages and cool prices.
Raw sugar futures slumped 47 percent this year through May, compared with a 34 percent drop in whites prices. The raw variety plunged faster because refining capacity lagged behind demand for white sugar, supporting prices for that type of sweetener.
Raw futures for July delivery rallied in New York yesterday, advancing 1.5 percent to 14.4 cents a pound after tumbling 7.6 percent in the previous two sessions. White sugar for August delivery on the Liffe exchange in London also rebounded, gaining 0.7 percent to $471.90 a ton after dropping 6.3 percent in the previous three days.
Raw sugar may trade between 10 cents to 15 cents a pound in the fourth quarter as excess supply from Brazil enters the global market, McDougall said.
“The danger is if we stay at these levels, for next year’s crop, there’s going to be a problem,” McDougall said. Supply may tighten again next year if prices stay below the cost of production, discouraging growers from planting cane and mills from expanding capacity, potentially fueling a rally as early as the first quarter, he said.
Many mills in India and Brazil will not be making money if raw sugar trades between 12 cents to 14 cents a pound, he said.
The outlook for prices “looks quite bleak” as the global surplus may be 30 percent larger than earlier estimated, buoyed by bigger harvests from Brazil and India, the largest producers, Jonathan Kingsman, managing director of researcher and broker Kingsman SA, said in Singapore yesterday.
The surplus may be 5.17 million tons in the year beginning April, ending a two-year deficit, he said. That compares with the company’s February estimate of a 3.99 million-ton surplus.
Developments in financial markets, including the impact on currencies from the European debt crisis, may change the price scenario for sugar and affect import demand, McDougall said.
Investors may move away from riskier assets and buy the dollar, weakening currencies including the Brazilian real, making exports from the country cheaper, McDougall said.