Scanning this week’s headlines, it’s apparent that the mood in the market has changed. Whereas not that long ago the worry was over where to secure sugar for imports, now it seems that everyone is talking about exports even though prices have fallen so far from their peaks. Maybe a surplus really is coming.
Of course there’s talk about exports from India, and the chance that the millers might get their wish with the chance to export another million tonnes or two. The fact that there’s talk isn’t surprising, but if they actually make a decision when they’re supposed to—and then implement it in a reasonable manner—it may mean time to buy some skis for the devil.
But what is really interesting are the not so traditional names in the list of hopeful exporters. Brazil, of course, is not bragging about any potential increase in exports. That’s because, again, of course, they don’t have any. Look who might, though. Why, it’s Bangladesh.
Bangladesh earlier this week announced a tender to import 25,000 metric tonnes of white sugar. But this same week the commerce minister announced that the country’s six refiners will in the next few months be allowed to begin exporting. They have installed capacity of nearly 400,000 tonnes compared to domestic demand of just 150,000 tonnes, which should make them perfect market players, especially since as a Least Developed Country they qualify for unlimited duty-free exports to Europe.
Yet this conundrum is backed up by the strange mystery of not only the white sugar import tender but also the Bangladesh Sugar & Food Industries Corp.’s expectation to import 200,000 tonnes of whites this year. Not raws for tolling, which would make sense, but whites for domestic consumption and stocks. Perhaps the mystery is some hidden premium for exporting to Europe and importing from the world market?
Ukraine doubled its sugar production this year, so will begin looking for more export opportunities—most likely to Europe as well. That goes to for Belarus who will be looking to make up for previous market demand in Russia that has dried up since Russia jumped into sugar hyper production mode on its own this season.
Thailand is boosting production at its mills to make sure that as much is produced, and exported, as possible before the rains come. They had a huge bumper crop last season but due to flooding from severe rains, that sugar got trapped before it hit the high seas so the country is learning from its lessons. How novel. The TCSC tenders are moving along as they should with premiums keeping in tact. This week’s tender saw premiums between 85 and 138 points over ICE March.
The Philippines too are doing a steady business, with exports having already reached 262,000 tonnes since September and they’ve got their eyes set on more. They’re trying to negotiate another 100,000 tonnes in quota for the US, which may well be possible considering how Mexican imports have fallen far enough to shrink the stocks-to-use rate to only a third of its normal level. Though new import quotas won’t be announced until April, no doubt Filipino diplomats are working their magic with the USDA as we speak.
Yet the Mexicans are the ones saying this week that they’ll soon be hitting the market with gusto. That may happen as soon as February or March, depending on which direction the peso slides with the dollar and how much proposed imports into Mexico weigh down domestic prices. They say they reduced exports because prices in Mexico have been more interesting in the US, but the more likely situation is that there just weren’t the volumes to move anything north.
Will that situation change like the Mexicans say? It’s anyone’s guess at this point, but don’t go betting anything that could risk the house or might lead to potential loss of life, such as holding one’s breath.
Despite all of this sudden excitement to start exporting, however, even when prices aren’t all that great—though not that bad either, compared to traditional prices in surplus markets—these countries it seems aren’t fooling anyone. Bloomberg’s reporting that an average of 21 analysts put the raw sugar price at 27 cents by the end of this year, up from Thursday night’s settle of 24.6 cents.
That leads one to believe that those who think they know better expect this surplus, if it even exists, to be short-lived and to work its way out by the end of the current season. Talk about increased exports from Bangladesh to the Ukraine could be smoke, or could be small volumes that don’t affect the long-term trend of continued tightness in the sugar market.
Hedge funds and their ilk have increased net-longs by 15% in the past few weeks while Brazilians are already pricing out to next March when they expect their crop to be even smaller. What it really means is that the idea that volatility in the sugar market might come to an end with the arrival of the surplus was just more wishful thinking. |
