While sugar production maybe lower in Brazil, many believe that India’s production will hit a record of over 30 million tonnes. Assuming no major weather issue arising, then production in Thailand, EU and China may well be at similar levels seen this season. Even in Brazil, sugar production is not expected to collapse. In BRL terms, current prices are not too dissimilar to levels seen in 2010. With Brazil likely to cut import duty on US ethanol imports, which will cap internal ethanol prices, and BRL volatility likely due to the Presidential election later this year, it is not inconceivable that total sugar production is no more than a couple of million tonnes less than the 36 million seen this season. This short fall could be easily made up and more by India’s output.
The other issue impacting on prices, is pressure on consumption due to health concerns over excessive sugar consumption. Many countries have, will or are seriously considering the adding of a sugar tax on products that have a high sucrose content. The manufactures, keen to protect their profit margin, have pre-empted the imposition of taxes by lowering the sugar content on many products from soft drinks to processed foods. This has meant the long established belief that global consumption increases by a linear 2% a year is now not true, with many seeing annual increase at closer to 1%. The industry has been slow to defend itself from a lot of ‘fake news’ about sugar and its consumption, and that it is now the new fifth horseman of the apocalypse!
All in all, a very gloomy picture for sugar. Neither the producers, shippers or even the consumers, will be happy with the current market. Unfortunately, it is difficult to see any reason for prices to substantially improve in the short to medium term. India and Thailand, plus other Asian producers, seem keen to maintain production as they attempt to grab market share from Brazil. They see the greatest growth in consumption in Asia, as the likes of China adopt a more Western diet and continuing population growth and want to supply the sugar. The EU is adapting to its new found export freedom and is keen to build new relationships with new clients, so are likely to continue to produce enough sugar to satisfy these fresh markets.
Therefore, it is only likely prices will improve substantially if a serious weather issue develops in one or more of the major producers. Two poor Asian monsoons caused the global deficits of 2015/16 and 2016/17 after five seasons of surpluses. Of course, prices may well fall to a level that will cause farmers in India and Thailand to rip up their cane to plant alternative crops. However, even if this was to happen next year, it is unlikely to impact on sugar production for another 12 months.
As 2018 gets into its stride, all traders will be hoping the “perfect storm” has passed and the sun will come out to shine on the sugar market.
Howard Jenkins E:
howard.jenkins@
admisi.com T: +44(0) 20 7716 8598
9 | ADMISI - The Ghost In The Machine | November/December 2017
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28
