Sugar Rally Stalls as Higher Prices Lead India to Boost Exportsby
Indian mills sold 100,000 tons of sugar for export last week
Export sales may limit price gains above 16 cents: Green Pool
The rally in sugar, the best-performing commodity this quarter, is fading as Indian millers rush to export at higher prices.
As futures approach 16 cents a pound in New York, millers in India are finding it profitable to export. The country, the world’s second-biggest producer of the sweetener, signed deals to ship about 100,000 metric tons of raw sugar last week, with Iran and Bangladesh said to be the buyers, according to a report from Green Pool Commodity Specialists.
"Will the 16-cents-a-pound level be a ceiling in the market in the short to medium term, as Indian producers target this level for exports?" Tom McNeill, director of Green Pool, said in a report e-mailed Monday. "That seems possible, if last week’s experience is anything to go by."
India is signing deals to export sugar after the government agreed to pay 11.47 billion rupees ($173 million) to subsidize part of the cane payments made to farmers. The subsidy will be given directly to farmers who supply cane to mills that will export sugar and produce ethanol, at least 80 percent of a government-set quota.
Indian sales last week "at close to 16 cents a pound could be a good indicator of intent over the coming months," Green Pool said. "The question is whether any of India’s competitors will do anything about the implied subsidy to Indian farmers."
Sugar last week reached the highest level since January after touching 15.78 cents on ICE Futures U.S. Prices have rallied on forecasts for global supply to fall short of demand for the first time in six years during the 2015-16 season, which started last month. The contract is the best in Bloomberg Commodity Index this quarter with a 16 percent advance.
Kingsman, a unit of McGraw Hill Financial Inc.’s Platts, forecasts a market deficit of 3.3 million tons this season. Other research firms have similar estimates, with F.O. Licht GmbH predicting a shortfall of 5.2 million tons and Czarnikow Group seeing 4.1 million tons.
Raw sugar for March delivery fell 1 percent to 14.82 cents by 11:15 a.m. in London as the Brazilian real weakened against the dollar. White, or refined, sweetener for the same month slipped 0.8 percent to $403.10 a ton on ICE Futures Europe.
"By rallying to 15 cents, the flat price has created a bit of extra supply, but has done nothing to solve the structural problem," Robin Shaw, an analyst at London-based broker Marex Spectron, said in an e-mailed report. "No one is going to plant extra sugar."