Worst EU Sugar Crop in 40 Years Spurs Imports as Refiners Profitby
EU sugar production will fall to lowest since 1971: F.O. Licht
Refiners boosting imports as dry weather hurts crops further
The European Union is poised for its worst sugar production in more than four decades, pushing domestic prices higher and spurring a wave of imports by the region’s refiners.
White sugar output in the EU’s 28 member states will fall 24 percent this season to 13.6 million metric tons, the lowest since 1971, researcher F.O. Licht GmbH estimates. Licenses granted to import sugar for refining are already running 57 percent ahead of last year’s level, according to figures from the European Commission, the bloc’s regulatory arm.
Dry weather in parts of Europe and smaller areas planted with beet mean some countries will produce less than the EU allows, said Stefan Uhlenbrock, an analyst at F.O. Licht. Yields in the bloc will drop 8.4 percent from a year earlier, the EU’s crop-monitoring unit MARS forecast in a report on its website Monday.
"There was a substantial reduction in sown area in the spring, but on top of this there were weather problems in certain countries, so yields were not overly impressive," Uhlenbrock said by phone on Friday. "There will be several countries which will not be able to live up to the quota for the 2015-16 season."
EU output of white sugar will drop from 17.8 million tons in 2014-15, with Sweden, Denmark, Finland and the U.K. among nations producing less than allowed under quotas introduced with the region’s 2006 sugar reform, according to Ratzeburg, Germany-based F.O. Licht. The bloc issued import licenses for 400,292 tons of sugar for refining as of Oct. 16, up from 254,525 tons in the same period a year earlier, Commission data showed. The EU quotas system is scheduled to end in 2017.
The EU, once the second-biggest exporter, has spent years cutting output after the World Trade Organization ruled it was dumping subsidized sugar on world markets. That left part of the bloc’s demand being met by imports brought in either free of duty or at a reduced levy. With a smaller crop and rising prices, refining in the EU is becoming more profitable, further spurring imports.
Some processors now make a profit importing at reduced duties from countries from Cuba to Australia, Uhlenbrock said. Imports for refining are already profitable in southern Europe, where sugar is sold at a premium to the western part of the continent, he said.
"Most of last season it was absolutely impossible to find a home for these duty-paying sugars," Uhlenbrock said.
Importers have applied for licenses to bring in more than 340,000 tons of reduced-levy sugar so far this season, compared with about 147,000 tons brought in for the whole of 2014-15, EU data showed. They are still able to bring in another 334,000 tons of lower-duty sugar from Brazil, although no importers have yet applied for the relevant licenses.
Prices in western Europe were 495 euros a ton last week, while sugar for delivery in the Mediterranean traded at 525 euros a ton, according to data compiled by Kingsman, a unit of McGraw Hill Financial Inc.’s Platts. The average price in July for Europe was 414 euros a ton, according to a Sept. 24 report published by the Commission.
Countries in the region will use sugar left from last year to meet sales this season. They still have "plenty of sugar" stockpiles, Claudiu Covrig, a senior agriculture analyst at Kingsman, said by phone from Nyon, Switzerland. There are “no immediate” problems in sugar supply, the Commission said in an e-mailed response to questions on Monday.
A lower harvest may mean the EU won’t follow its normal procedure of licensing a second tranche of exports of sugar from the region this season, said John Stansfield, an analyst at independent soft-commodities trader Group Sopex. That outflow typically reaches about 700,000 tons. That could help tighten global supplies and boost prices that rose 20 percent on the ICE Futures U.S. exchange last month. Global production this season will fall short of demand for the first time in five years, London-based Czarnikow Group Ltd. says.
"We see EU refiners importing significant volumes for the first time in a couple of years,” said Stansfield, who has followed the market for more than 20 years. “The EU could be the real game changer."