WORLD SUGAR NEWS - JUNE 2007
Price for raw sugar started the month at 9.56 cents/lb, and reached a low 8.87cents/lb on June 14, but rose steadily back to 9.53 cents/lb at month close. In terms of monthly averages, it decreased slightly from 9.43 cents/lb in May to 9.29 cents/lb, the lowest since June 2005.
White sugar prices experienced a similar pattern. According to the ISO, the price decreased from USD327.35/tonne (14.85 cents/lb) on 1 June to USD 300.45/tonne (13.63 cents/lb) on 14 June. Thereafter, white sugar prices increased slightly to finish the month at USD 314.65/tonne (14.27 cents/lb). The monthly average fell by 3% to USD 312.32/tonne (14.17 cents/lb), the lowest since November 2005.
Although prices have been moving sideways, little has changed to world sugar fundamentals: the market remains well supplied, and the consensus is of a sizable surplus during 2006/07. Moreover, the new cane crop prospects remain very good, auguring for another season of global surplus in 2007/08 despite lower sugar prices.
World production surplus in 2007-2008
The Australian Bureau of Agriculture and Resource Economics (ABARE) has projected world sugar output of 168.5 mln tonnes in 2007/08, up from 162.6 mln tonnes in 2006/07. This is above world consumption of 157.5 mln tonnes, up from 153.5 mln tonnes in 2006/07. Consequently, ending stocks will rise to 80.0 mln tonnes from 69.0 mln tonnes.
EU sugar firms fail to grasp reform –farm group
Price-slashing EU sugar regime reforms have failed to encourage enough processors to give up production, and growers are not fully integrated in the process, a leading UK growers' representative said last June. "Our main concern is that processors have had two years to restructure and take the aid and have failed to take the aid," said William Martin, vice-chairman of the National Farmers' Union Sugar Board. "We share everyone else's assessment that the reforms haven't worked so far”.
The European Commission has staged price-slashing reforms to its long-standing subsidized sugar regime, reducing supports to growers and helping inefficient producers to quit the industry in order to create a fairer playing field in global sugar markets. Martin said too few processors had surrendered sugar production, which meant surpluses remained and prices were depressed in the EU market.
"Some processors seem to think they will be bailed out by the (European) Commission," he said. "The Commission at the end of the reform process can impose unilateral quota cuts across member states." Martin added that EU growers had not been fully involved in the reform process. "We are trying to encourage the Commission and member governments to accept that growers have an equal share in the debate," he said. "Growers need to be given the possibility to help solve the EU sugar surplus."
In some cases, processors had failed to scale back output because certain EU member governments had tried to support their sugar industries, Martin said, referring to countries that had recently joined the EU. Martin said he expected EU exports to fall below the World Trade Organization (WTO) ceiling in the current 15-month 2006/07 marketing year. The export limit is based on the original annual WTO volume limit of 1.2735 million tonnes plus about 100,000 tonnes for the new member states on a pro rata basis across the marketing year.
Tate & Lyle to focus on its refining business
Tate & Lyle Plc. Plans to focus more on its refining business in the UK and Portugal following the EU sugar reforms, Chief Executive Iain Ferguson said. EU reforms require EU sugar producers to cut white sugar production by a total of 6 mln tonnes by 2010 and have prompted the company to restructure its sugar operations. Ferguson said that slower-than-expected industry-wide production cuts have reduced prices and impacted the whole industry.
Group Finance Director John Nicholas said that oversupply has depressed prices and while they are lower this year from last, they are expected to stabilize. He added that following EU reforms, the company will merge its two sugar divisions and will receive a EUR 107 mln grant from the EU for cutting production later in 2007. But Tate & Lyle expects its refining business to be competitive on the EU market. Ferguson said that the refining facilities along the Thames in London and in Lisbon will also be well positioned to receive raw sugar from ACP countries with which the EU has an agreement.
Since the EU reforms were enforced last July, Tate & Lyle has withdrawn from its Eastern Sugar venture with Saint Louis Sucre SA and will receive GBP 51 mln from the EU for relinquishing its sugar production quota. The net gain on the closure is expected to be GBP 15 mln, the company said previously. The company has also sold off its Canadian sugar refining business Redpath, for GBP 131 mln.
Brazil’s production of ethanol is expected to rise to 20.5 bln litres in 2007/08 (May/April), compared to 17.9 bln litres in 2006/07, according to a recent estimate by Datagro Consultancy. Hydrous ethanol production will account for most of the growth, with an estimated production volume of 11.9 bln litres compared to 9.6 bln litres last year.
Domestic fuel ethanol prices accelerated their steep fall during June as a result of more of the 2007/08 Centre-South cane being allocated to ethanol production. Ex-factory anhydrous ethanol averaged BRL 0.68/l in June, a drop of 26% compared to May. Hydrous ethanol prices fell to BRL 0.59/l on average during June or down 18% from May. On the back of cheaper ethanol, domestic demand for ethanol continues to show strong growth. Brazil’s sales of flexifuel cars continue to gain share in the light vehicle market and in June reached 86.2% of the new fleet. During the first six months of 2007, sales of flexifuel cars amounted to 859 thousand units, a figure that represents 60% of the total sales of such cars during the whole of 2006.
Brazil’s ethanol exports in the first semester of 2007 - with the US as the leading destination with 886.6 mln litres - totalled 1.54 bln litres and were 71% higher compared to the same period in 2006. Direct sales to the US were also higher this semester compared to the same year-ago period, at 458.3 mln litres and 382.6 mln litres respectively. Indirect exports to the US, which constitutes of Brazilian ethanol dehydrated and shipped from the Caribbean and Central America, reached 428.3 mln litres, against only 145.5 mln in the first semester of 2006.
A significant growth of exports to the European Union was also recorded, with an aggregate volume of 180 mln litres compared to 82 mln litres in the same period last year. The mean unit value of exports of ethanol rose from USD 0.39/l to USD 0.45/l, according to figures from the Brazilian Government.
Ethanol blend in gasoline may be raised to 25%
The Brazilian government is mulling to raise the mandated ethanol mix in local gasoline to 25% from 23% now. The higher mix will help the domestic market consume an additional 40 mln litres of ethanol monthly, thus sustaining prices. In May alone, local prices have fallen by roughly 30% for both hydrous and anhydrous ethanol, with the onset of the 2007/08 sugarcane harvest and increased output.
Brazil No. 1 cane state to ban burning by 2017
Brazil's No. 1 sugar cane state, Sao Paulo, will ban all cane burning by 2017, well before the previously scheduled target of 2031. State governor Jose Serra signed an agreement with the National Cane Industry Union, whereby 88 percent of Sao Paulo's cane area will end burning by 2014 and the remaining 12 percent, or 440,000 hectares in slightly hilly areas, by 2017.
Sao Paulo cultivates 4.2 million hectares of sugar cane out of a national crop of 6 million hectares. In 2006, sugar cane producers burned some 2.6 million hectares of cane fields. Fields are burned before harvesting to remove pests and undergrowth so as to improve conditions for manual cane cutters. About 70 percent of Sao Paulo's cane crop is harvested manually. Cane burning, especially when humidity is low, causes huge clouds of smoke and endangers public health. Sao Paulo started harvesting a forecast record crop in March and is expected to continue until December.
India battles Brazil in raw sugar trade
India has emerged as a key supplier of raw sugar and will engage in a fierce battle for market share against dominant producer Brazil in a number of regional markets. Sugar futures fell sharply on news of India's first bulk raw sugar sale to Dubai's al-Khaleej refinery, the biggest refined sugar producer in the Middle East which traditionally sources supplies from Brazil, the world's number one producer. Jamal al-Ghurair, the refinery's general manager, confirmed a sale of over 200,000 tonnes of Indian raw sugar to the Dubai plant for delivery later this year and into next year. He said more Indian sales were expected, primarily due to the availability of Indian sugar and its freight advantage.
G.S.C. Rao, executive director of Simbhaoli Sugar in India, said, "We (India) have to compete with Brazil, but we have a freight advantage in many markets. India can displace Brazil from many markets in raw sugar." Raw sugar futures have fallen by 27 percent so far in 2007, closing on the New York Board of Trade at 8.56 cents/lb early June, pressured by a global supply glut, now accentuated by confirmation of additional Indian supplies.
Analysts say they expected Indian raw sugar exports of between 500,000 and 1,000,000 tonnes in the next crop year. India enjoys a freight advantage in supplying raw sugar to nearby destinations, particularly southern Asia like Pakistan and Bangladesh, and the Middle Eastern Gulf such as Dubai.
However, analysts pointed out that Indian sugar prices had been boosted by news the Indian government was considering increasing the size of its sugar buffer stock to five million tonnes from the current two million. A top industry official, however, said that the move was unlikely to offer much support for prices. India's sugar sector has been struggling to cope with a growing surplus linked to rising production. India's scope for exporting refined white sugar has become smaller as traditional markets in the region such as Bangladesh and the Middle East have set up their own refineries. "We think India is going to be exporting bulk raw sugar because the low quality (whites) market is saturated," said one London-based analyst.
Analysts said India's competitive advantage in its regional markets was heavily dependent on the continuation of Indian export subsidies. "There has been mention of both Thailand and Brazil being upset by the fact that India is using subsidies on its exports," said an Australian analyst. "Brazil, Thailand and Australia spent a couple of years trying to get the European Union out of the subsidised export game. They don't really want to see India just step into the breach."