Sugar Price Set To Fall In 2013

By: Georgi Milenkov
Georgi Milenkov
Georgi likes all things shiny; gold, silver, platinum an pirate treasure. Fascinated by the commodities market, Georgi uses his… read more.
on Feb 7, 2013

Sugar price is likely to continue to fall this year, analysts predicted at the Kingsman sugar conference in Dubai, Bloomberg reported on February 15. If the forecasts are correct, this will mean that sugar will be in decline for a third consecutive year, the commodity’s longest slump since 1992. Production is currently greater than demand which is unsurprisingly bringing about declining prices. In this situation, Brazilian producers are expected to start making more hydrous ethanol from sugar cane, a biofuel product that hasn’t so far managed to be truly competitive to gasoline.

**Production greater than demand**
According to analysts’ estimates raw sugar futures traded in New York will fall to 17.66 cents a pound in 2013, possibly leading to the third consecutive annual decline in sugar prices. In the past two years the sugar price decreased by 39 percent and it has already dropped another 4.1 percent since the start of 2013. The decline is attributed to the fact that sugar output continues to exceed demand. The 2012-13 surplus that ends in September is estimated by Singapore trader Olam International Ltd. (OLAM) at about 10 million metric tons. Macquarie Group Ltd., the investment banking group based in Sydney, Australia, forecast the 2013-14 surplus to be at 3 million tons. Macquarie also said last month that the 2012-13 surplus will be the third consecutive surplus.

Other estimates made by Imperial Sugar Co., a unit of Louis Dreyfus Commodities BV, suggest that output from Brazil may be driven to record levels in the 2013-14 marketing year, which starts in April. Mike Gorrell, the head of the division, expects sugar production from the centre south, Brazil’s main growing area, to reach a record level of 35 million to 37 million metric tons during that period. However, some producers, including Brazil-based Copersucar SA, Sao Martinho SA and Raizen, believe that these estimates could change if the Brazilian government takes measures to stimulate demand for hydrous ethanol.

**A solution or just a solvent?**
Hydrous ethanol, used in flex fuel cars, has failed to gain much traction on the market, mainly because its high costs put it in an unfavourable position to gasoline. According to Roberto Rodriguez Labastida, senior bioenergy analyst at New Energy Finance in London, in 2012 hydrous ethanol sales in Brazil fell to 8.9 billion litres, the lowest levels since 2006. Yet, the situation may change if measures to stimulate demand, including dropping taxes on the biofuel, are initiated by the government. Tax incentives to make the biofuel more attractive to Brazilian millers could provide a needed boost to the market, Paulo Roberto de Souza, CEO of Copersucar, believes.

!m[Ethanol Production Could Cut The Surplus](/uploads/story/1386/thumbs/pic1_inline.png)
The government is already making steps towards boosting demand for the biofuel. Petroleo Brasileiro SA (PETR4),Brazil’s state controlled oil company announced last week that it increased gasoline prices at refineries by 6.6 percent to boost demand. Additionally, the anhydrous ethanol blended into gasoline is planned to be increased to 25 percent in May.

Copersucar expects that ethanol production will increase to 24 billion litres from 21 billion litres.
Copersucar also said that more ethanol production could cut the sugar exports from Brazil’s centre south in 2013-14 by 5 million tons, an opinion which is supported by Jonathan Drake, chief operating officer of Singapore based trader RCMA Commodities Asia Ltd. Mr. Drake opined that increased ethanol production could erase the sugar surplus within 18 months. However, he also said that it will most likely take the sugar price falling to about 16 cents per pound to make ethanol production attractive for Brazilian millers.
**The raw sugar price for March delivery is currently 18 cents per pound.**

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