Czarnikow Raw Sugar Price Outlook
- Weak demand is yet to be altered by the low prices, a move back to 10c is likely this year.
Quarterly Trade Flows
Raws Flat Price View
Short Term – V’19
The market has continued to test the lows of 11.50c/lb over the past week and is yet to decisively break through. The low prices are yet to increase world market raws demand and we have seen our trade flow surplus increase in the past couple of months.
As we approach the October expiry, producers are running out of time to price their sugar. It seems that unpriced Brazilian mills are beginning to come to terms with the fact that they will need to price at these levels and are looking to reduce their hedging targets.
While it could have been hoped that the 600k tonnes of Thais delivered into the July would help to clear up the 2019 raw surplus this doesn’t look to be occurring. It is rumoured that the receivers are struggling to place the poor-quality sugar that has been delivered and that some has been washed out. It is therefore possible that we will see this tonnage delivered to the October along with Guats and Argentinians.
This oversupply in the raws market and the pricing to come leads us to think 10c will be revisited in 2019.
Medium Term – H’20
With a 6m tonne surplus across the next year we need the market to incentivise producers to not produce sugar. Unfortunately, producers have already planted their sugar crops for the 19/20 season. Watching the weather is all we can do.
Brazilian mills do have the ability to reduce supply this season by reducing their operational efficiency and increasing production of ethanol at the expense of sugar. We think Brazil could take 500k tonnes of supply out of the world balance if ethanol continues to pay 2c/lb more than sugar.
Fortunately, Brazilian pump prices are yet to reflect crude oil’s recent fall; once they do, this will affect hydrous prices negatively and the No.11 will need to fall to ensure continued strong ethanol production.
If Brazilian mills aren’t incentivised to reduce efficiencies then we think Brazil could carry 1m tonnes into 2020. This along with 1m tonnes of unsold Thais that could make their way round into Q1’20 will displace new season northern hemisphere sugar, continuing the oversupply well into 2020.
Long Term – K’20 onwards
The majority of the world’s sugar production comes from the Northern Hemisphere. Beet and cane crops here start again in H2’19. But global sugar stocks remain at record highs today. These high stocks mean buyers don’t need to chase the market, and this feeds all the way back through the sugar supply chain to the raws market, which is oversupplied into 2020.
The quickest way for this problem to resolve is poor weather somewhere damaging cane or beet growth. This is the key thing we are watching for.
