Sugar Prices May Slide Further Before Demand Rebounds

By: Tsveta van Son
Tsveta van Son
Tsveta van Son is part of Invezz’s journalist team. She has a BA degree in European Studies and a… read more.
on Sep 21, 2012

Sugar prices may continue to fall before the sugar market picks up, a new report by the global commodity house Czarnikow Group Ltd has indicated. On 20 September 2012, Bloomberg reported that according to the London-based company, the world production of raw sugar may outpace demand by as much as 7.1 million metric tonnes in the 2012-13 season, driving prices down.

The Czarnikow report estimates that while raw sugar production may total 180.6 million tonnes, down from 400,000 tonnes from a projection in May, consumption may be 173 million tonnes. Bloomberg quotes Toby Cohen, director at Czarnikow, who noted in an e-mailed statement that the company forecast a fourth consecutive year of rising sugar cane production, a trend not observed since the early 1990s. “A production surplus and lower prices should encourage increased consumption. But consumers may not respond as quickly as the market would like.”

Bloomberg reports that sugar futures slid to a two-year low reaching 18.81 cents a pound on September 6 on ICE Futures US in New York. The decline comes after in June and July sugar prices climbed 16 percent with rains delaying harvesting in Brazil. According to Czarnikow, the “unusually dry” weather observed in August allowed an earlier harvest, boosting supply on the sugar market. Czarnikow expects that Brazil’s main growing region will crush 525 million tonnes of cane, with total sweetener production of 33.5 million, up from the company’s 32.3 million tonne estimate made in May.

In addition to predicting higher output in Brazil, Czarnikow also increases its estimate for the EU on account of the warmer weather observed in recent months. European exports for the season are forecast to be 1.4 million tonnes.
“Better weather and harvesting conditions will provide a boost to the CS Brazil’s crop. And this, coupled with better-than-expected beet harvests across Europe, means a bigger balance sheet surplus for the global sugar market in the coming months,” notes Peter de Klerk, analyst at Czarnikow.
India, however, is expected to produce 25.9 million tonnes of sugar, down from the previous 29.2 million tonnes forecast, whereas consumption is estimated to reach 26.1 million tonnes, or a one percent increase, relative to a year earlier, Bloomberg reported.

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