Raw Sugar Falls Under the Weight of Crumbling White Premium
Raw sugar futures fell Tuesday, pressured by a crumbling premium between white and raw sugar as a global glut of sugar has spread into the refined market.
The New York market of raw sugar has recently stabilized as Brazilian mills are increasingly switching to ethanol from sugar and the Indian monsoon came in weaker, hurting sugar output. But white sugar futures in London have plummeted in recent months, driving down the price difference between refined and raw sugar to its lowest level since February 2015, according to FactSet.
Raw sugar for October delivery edged down 0.8% to 14.18 cents a pound on the ICE Futures U.S. exchange.
Prices fell in spite of a bullish report by Brazil's cane industry group UNICA, which showed that mills in Brazil's center-south region crushed less cane and produced less sugar than expected in the second half of August.
Mills in the world's largest sugar-producing region crushed 38.91 million tons of cane in the second half of August, a decrease from 45.28 million tons in the first half. Sugar production fell to 2.53 million tons, compared with 3.15 million tons in the previous two-week period and an average expectation for 2.82 million tons.
After sugar prices spent nearly two months hovering below 14 cents a pound, many mills in Brazil have switched to produce ethanol, which pays better than sugar. Sugar mix was reported to be at 46.9%, even lower than S&P Platts Kingsman's estimate of 48.9%.
"There's some selling in the whites, which has created a drag on the raws," said Michael McDougall, director of commodity agency at Societe Generale. "White sugar producers have got themselves into a bind," as they have waited too long to sell their refined sugar.
Some analysts said that protectionist policies adopted by China and India have distorted the global sugar market, creating a surplus in the export market and leading producers to suffer from low prices.
In China, a sharp decline in sugar production in recent years led the government to impose heavy tariffs on sugar imports to protect the country's less-efficient and uncompetitive sugar industry. As a result, China's sugar imports fell this year, helping liquidate the country's huge stockpiles and boost domestic production. White sugar prices in China are currently trading at a 165% premium to London prices, and the high domestic prices would continue to stimulate acreage expansion, analysts say.
New Delhi early this month allowed imports of 300,000 million tons of raw sugar to ease short-term tightness in the country, but "controlled and small imports would not be sufficient to ease the surplus in global markets," wrote Rajesh Singla, an analyst at Societe Generale, in a Monday research note.
Globally, stock-to-use ratio continues to fall as these countries run down their sugar inventories. The demand and supply situation in these countries will become vulnerable to any weather issues in the next season, Mr. Singla said.
Societe Generale recently raised its estimate of world sugar production to 179.5 million tons for the marketing year 2017/2018, a 5.5% increase from the prior year. As a result, the bank now foresees a global surplus of 5.3 million tons, up from its earlier estimate of 4.5 million tons, due to largely favorable weather in India. Brazil is expected to produce a record amount of sugar in 2017/2018.
In other markets, orange juice for November was up 2.1% to $1.5460 a pound, cocoa for December added 0.1% to $1,936 a ton, arabica coffee for December rose 1.7% to $1.3410 a pound and December cotton was down 1.3% to 71.21 cents a pound.
Write to Carolyn Cui at carolyn.cui@wsj.com
(END) Dow Jones Newswires
September 12, 2017 12:09 ET (16:09 GMT)