Mar 24 / Lívea Coda

Sugar Market Trends

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"Constant downgrades to India’s and Thailand’s sugar output have driven the market up, helping the May contract reach 20 c/lb. Limited unsold stocks in the Brazilian Center-South and high cash premiums further support short-term prices. India’s production downgrade to 29Mt raises long-term bullish signs, while China’s higher production and closed import arbitrage affect demand in the short-term. The market awaits the new Center-South season and potential price corrections in the medium-term."

Sugar Market Trends

  • Constant downgrades to India’s and Thailand’s sugar output have driven the market up, helping the May contract reach 20 c/lb.

  • Limited stocks in the Brazilian Center-South further support high cash premiums and short-term prices.

  • We remain optimistic about Center-South 25/26 crop as the development conditions were better than the ones observed for 24/25 – which is already close to reaching 620Mt.

  • India’s production downgrade to 29Mt raises long-term bullish signs, with potential support for the Oct/25 and Mar/26 contracts.

  • China’s higher production and closed import arbitrage affect demand, with potential buying triggered if prices drop below 18c/lb.

Continued downgrades to India’s and Thailand’s sugar output have driven the market up, helping the May contract finally reach 20 c/lb on Thursday (20). Additionally, the notion of limited unsold stocks in the Brazilian Center-South contributes to the already anticipated short-term price support. Cash premiums are reportedly high, surpassing 50 points in Santos for April and reaching over 130 points for Thailand Hi-Pol.

Image 1: Raw Sugar Prices (c/lb)

Source: Refinitiv, Hedgepoint

Adding to that, the market has been flooded with the idea that Center-South’s 25/26 crop won’t reach the same levels as 24/25, a notion we remain skeptical of. As discussed in our previous report (link), rainfall was better, and other indices such as soil moisture and NDVI also remain higher than during the 24/25 crop development stage. Therefore, if we are heading towards a nearly 620 Mt crushing result for the current season, with better conditions for development, one could expect more raw material coming up in 25/26. This doesn’t mean we don’t expect prices to react in the short term. As previously mentioned, Brazil has little to offer until the new season picks up rhythm, which will possibly happen with some delays. Until then, restricted supply from the country, and worsening prospects in India and Thailand, with some rumors of a possible export ban on the former, should support prices.

Image 2: Center South Average - soil moisture in the cane areas (mm in top 0-1.6m soil)

Source: Refinitiv, Hedgepoint


Regarding India, it is worth mentioning that, although December and January showed quite healthy results, February brought higher concerns about the country’s availability. We were initially resistant to downgrading our numbers, but given the recent results, we revised sugar production down to 29Mt, considering 3.5Mt of ethanol diversion. This means that at least 600kt will be consumed from the country’s stocks to supply the domestic market, in addition to the 1Mt approved for exports. Market estimates suggest that around 700kt of this volume has already been contracted, with 300kt exported between January and February.

Hence, in terms of trade flows, unless the government decides otherwise, it will be difficult to see any changes coming from the country. The production revision speaks, therefore, more about the next season. If the monsoons develop positively for cane growth, which is crucial for the market to avoid a bullish spree, the fact that stocks were consumed might lead the government to take its time before allowing any sugar exports.

Interestingly, despite lower production estimates, ISMA still reports healthy stocks levels. This is a bit puzzling and is one of the reasons while we limited our revision at 29Mt.

Image 3: Sugar Balance - India (Mt Oct-Sep)

Source: ISMA, AISTA, ChiniMandi, NFCSF, Hedgepoint


India’s production situation is, therefore, a bullish sign for the long term, possibly adding a bit more support to the Oct/25 contract, but most importantly, to Mar/26. The former, Oct/25, should still be highly influenced by the Brazilian 25/26 output.

On the other side of the equation, demand is showing signs of awakening, pushing up cash premiums and supporting prices. China, for instance, might have found some opportunity at the beginning of March, but with the recent price recovery, its import arbitrage has closed, making the country less inclined to buy.

The main reason is its higher production; China produced 22% more by the end of February, reaching 9.72Mt. Meanwhile, the country imported 50% less, with only 1.5Mt of sugar. It is expected that the import rhythm might pick up once the new Center-South season starts and prices correct a little. However, considering the parity, it would trigger buying if prices drop below 18c/lb.

Image 4: Chinese Estimated Import Arbitrage (USD/t)

Source: Bloomberg, Refinitiv, Hedgepoint

In Summary

Constant downgrades to India’s and Thailand’s sugar output have driven the market up, helping the May contract reach 20 c/lb. Limited unsold stocks in the Brazilian Center-South and high cash premiums further support short-term prices. India’s production downgrade to 29Mt raises long-term bullish signs, while China’s higher production and closed import arbitrage affect demand in the short-term. The market awaits the new Center-South season and potential price corrections in the medium-term.

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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