Olam Sees Sugar Market Turning Bullish as Imports Beat Exports

  • Global exports set to trail import demand in 2015-16: Carello
  • Olam sees constructive fundametals this year, bullish in 2017

The global sugar market is turning bullish as world exports are set to trail rising demand, according to Singapore-based Olam International Ltd., one of the world’s largest food traders.

Supply and demand fundamentals are "constructive" this year and bullish for the next, Piero Carello, a London-based general manager at Olam, said in an interview before the Dubai Sugar Conference, a private event for 400 industry leaders. The global shortage will be driven by the need for countries to import, he said.

Sugar futures traded in New York rose 5 percent last year, ending four annual losses, on forecasts for shortages in the 2015-16 season that started in October. The sweetener was the third-best performer in the Standard and Poor’s GSCI index of 24 raw materials after cocoa and cotton. All other commodities fell.

"The days of strong fundamental bearishness are coming to an end, globally," said Carello, who will be speaking at a panel on Monday. "It’s undeniable that we have moved into a production and consumption deficit, be it in a relatively healthy stocks scenario, and we are slowing moving to trade-flow deficits."

Sugar production will fall short of consumption by 5.5 million metric tons this season as years of low prices mean stagnant output, Olam estimates. The shortage will widen to 6.2 million in 2016-17, Carello said. He declined to comment on the trade-flow deficit, a measure of how much import demand around the world exceeds export availability.

Traders are divided on whether the global market is facing a trade-flow deficit or a surplus and this season will be defined by import demand, rather than supply, according to Olam. Small changes to import needs in various countries could add up to a significant amount, he said.

"You can take the top 10 sugar importers and then say they could import three boats more or three boats less in a year," Jack Hannon, an Olam analyst, said in the interview. "When you add them all up, you are talking 500,000 to 800,000 tons either way, so that’s the difference between a surplus or a big deficit. That’s why there’s so much divergence, because the market is so finely balanced."

A tighter sugar market will mean futures for earlier delivery will trade at higher prices than those for later dates, a market structure known as backwardation or inverse, Carello said. The opposite is called contango or carry. Raw sugar for March delivery climbed to a record premium of 0.51 cent a pound to futures for the next delivery month on Dec. 1 before easing to 0.06 cent Friday.

Tightness in sugar supplies is already being felt in the market for refined sweetener, where its premium over the raw variety rose to a five-month high of $117 a ton Friday. The so-called white premium is widening on stronger Chinese demand and El Nino-induced delays to crops in Central America, and is also increasing profits for refiners. Olam is seeing more constructive fundamentals for white sugar than the raw variety, Carello said.

"Traditionally, if you go back over the years, the signs of the world changing has been whites-led, because people eat white, they don’t eat raw," he said. "So we are watching this with interest to ascertain if the current surge in the white premium is all fundamentally driven or not."

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