Jan 20 / Lívea Coda

Market Dynamics Overview

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"This week, India was a focal point with rumors of easing import restrictions adding to the bearish market sentiment. The country's sugar production is lagging by 17.8% compared to the previous season, mainly due to crop start delays, though January primary results reduced this difference to 15.3%."

Market Dynamics Overview

  • India's sugar production was lagging by 17.8% in December, compared to the previous season, mainly due to crop start delays. January primary results reduced this difference to 15.3%.

  • The country reported lower average sugar recovery, raising doubts about its production and export capacity.

  • India's domestic sugar prices have corrected sharply but faced resistance recently, making export parity more stable than international prices. This reduces the incentive for Indian millers to export.

  • The market currently views India as more of a bullish factor than a bearish one, but the situation could change based on the next two months' results and political decisions.

  • Brazil's higher availability has compensated for uncertainties regarding India. Crushing over 1Mt and reaching 613Mt by the end of December, Brazil's season is expected to end with over 620Mt of cane crushed, producing nearly 40Mt of sugar and enabling healthy exports.

Last week, India was the highlight. Rumors that the country might ease restrictions on imports added to the already bearish sentiment in the market. As discussed in previous reports, India’s production shows sluggish results, lagging about 17.8% by the end of December compared to the previous season. Nevertheless, most of this difference can be attributed to crop start delays. One reason that supports this view is that, in December, crushing was in line with 2023 results. Secondly, January results reduced the difference to 15.3%.

However, the country has reported lower average sugar recovery, which might signal that we are overly optimistic regarding its possible production and capacity to export. Yet, the market’s average estimate for India’s production, at roughly 28Mt, would mean that the country would need to consume stocks to match the over 29Mt sugar consumption, making export rumors highly unlikely – and that is not what the market seems to be pricing.

Image 1: Sugar Balance - India (Mt Oct-Sep)

Source: ISMA, AISTA, ChiniMandi, NFCSF, Hedgepoint

But are we considering everything? There are two interesting points to monitor, besides production. The first is domestic prices. India’s domestic prices have corrected sharply since the beginning of the crop year; however, they have faced some resistance recently, which might be a setback to exports. Looking at the second point of interest, this resistance in domestic price correction made the export parity more stable than international sugar prices, meaning that, as of now, the Indian miller has little incentive to export – unless it has more availability than the market average expectation.

Image 2: India Domestic Prices vs International Market ( USD/t)

Source: Refinitiv, Hedgepoint

Therefore, it is hard to categorize India as either bullish or bearish. The situation could swing either way depending on the results of the next two months and political decisions. Currently, we believe that the market perceives India as more of a bullish factor than a bearish one. However, one thing is certain: Brazil's higher availability has compensated for the uncertainties regarding the Asian country. With or without India's exports, trade flows seem to be heading towards a surplus.

Unica’s latest report, released last Wednesday, highlighted what a healthy season 24/25 has been despite all the adverse weather. Crushing over 1Mt and reaching 613Mt by the end of December, mills were still operating! This is very different from the crop sudden-death discussed in August 2024, when fires hit the region. These results have added to the expectation that the crop will end with over 620Mt of cane being crushed, producing nearly 40Mt of sugar and enabling healthy exports. It has also contributed to a more optimistic view regarding the 25/26 crop development. Recent rains and the fact that weather adversity wasn't as bad as previously expected pave the way for another year of good results.

The current bearish sentiment aligns with sugar prices orbiting around 18 cents per pound. Unless there is some significant bullish news, prices might remain stagnant for a while. China has not made substantial purchases, and its parity remains closed at this price level. For it to open in non-producing states, considering they are operating at full capacity this time of year, international prices would need to adjust to 16.5 cents per pound, while domestic prices remain stable.

Image 3: Bi-weekly sugarcane harvested at Center-South mills (M ton)

Source: Unica, Hedgepoint

On the bullish side, Brazilian FOB is being traded with a premium. January delivery is at an 8-point premium, and February is estimated at 25 points, according to Reuters. This indicates that there has been demand for Brazilian sugar, and with reduced availability during the final stages of the offseason, there might be some upward price movement. However, this bullish trend is likely to be short-lived. Demand might be willing to wait for the 25/26 season, and even if it isn't, increased volume is not far off, considering the improving prospects for the next crop.

Image 4: Raw Sugar Santos FOB Premium - Prompt Monthly Average (USc/lb)

Source: Refinitiv; Hedgepoint

In Summary

Last week, India was a focal point with rumors of easing import restrictions adding to the bearish market sentiment. The country's sugar production is lagging by 17.8% compared to the previous season, mainly due to crop start delays, though January primary results reduced this difference to 15.3%. Lower average sugar recovery raises doubts about India's production and export capacity, with market estimates suggesting the need to consume stocks to meet domestic consumption. With stable domestic prices reducing export incentives, the market views India as more bullish, while Brazil's higher availability compensates for uncertainties, leading to a surplus in trade flows.

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com
www.hedgepointglobal.com

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