Sugar prices could rally to 23 cents to 24 cents a pound on the risk of production estimate cuts in Thailand, India and the European Union just as importing countries rebuild stockpiles, according to Macquarie Group Ltd.
Sugar has fallen 11 percent so far this year to 20.84 cents a pound in New York trading on speculation supplies would outpace demand for a third year in the season that started this month. The global sweetener surplus will be 4.3 million metric tons in 2012-13, down from 6.5 million tons a year earlier, estimates Kona Haque, a London-based analyst at the bank.
“We see bullish risks from even lower production in Thailand, India and the EU, which could necessitate higher imports into the latter two,” Haque said in a report e-mailed today. “The re-stocking process continues, and until it is completed, prices will remain vulnerable to any unforeseen supply, principally weather-related shocks.”
Sugar output in India, the second-biggest producer and largest consumer, is set to drop to 23.8 million tons from a previous forecast of 24.4 million tons because of dry weather, Macquarie estimates. That compares with 26 million tons a year earlier. The lack of rainfall in Thailand, the second-biggest exporter, will cut production to 9.8 million tons from 10.3 million tons last year, the bank said. EU output will be 17 million tons compared with 18.2 million tons in 2011-12.
A potential shift to ethanol from sugar in Brazil, the largest producer of the sweetener, could also add to bullish sentiment in sugar, Haque said. Millers may opt to make more of the biofuel next year if the government there chooses to bring the mandatory blend into gasoline back to 25 percent from 20 percent now, she said. Ethanol could become more profitable if rising corn prices result in more imports from the U.S.
“Changing dynamics in Brazil’s ethanol market have the potential to curb sugar output there too,” Haque said.
Prices rallies are unlikely to take sugar above the 24 cents to 25 cents a pound range because of a surplus and lower import demand from China and Russia, she said. Russia will produce 5 million tons of sweetener in 2012-13, down from 5.2 million tons a year earlier and up from 3 million tons in 2010-11, when the country was the largest importer of the raw variety, the bank estimates. In China, output will jump to 13.8 million tons from 11.5 million tons a year earlier, according to the report.
“Russia, usually the single largest importer, is on track to produce another bumper beet crop, which will again limit the country’s import requirements,” Haque said. “Lower import demand overall, especially from Russia and China, will likely be a drag on this market.”