By Nigel Hunt
LONDON (Reuters) - Sugar's two-year global supply short-fall, a key factor behind blistering price rises, is expected to end in 2017/18, with rain returning to major Asian producers while European Union reforms will boost production in the trading bloc.
Raw sugar prices more than doubled to a peak of 23.90 cents a lb in October, from as low as 10.13 cents in August last year as investment funds built up a record net long position against the backdrop of shrinking supplies.
The run-up has started losing momentum however as crop news turned positive. Prices had dipped below 20 cents a lb this week as funds scaled back long positions.
"A bull needs to be fed constantly to put on weight and the same can be said for a bull market. For the time being the sugar market has run out of fresh bullish news and that is the reason for the decline we are seeing," Uhlenbrock said.
Uhlenbrock forecast there would be a more balanced market in 2017/18 and possibly even a modest surplus after deficits of 9.9 million tonnes in 2015/16 and 6.2 million in 2016/17.
The deficits have been driven partly by an El Nino weather event that led to droughts in parts of south and south-east Asia including major producers India and Thailand.
In India, consumption is set to outstrip output for the first time in seven years in the 2016/17 season as back-to-back droughts ravaged cane crops in the top producing western state of Maharashtra.
Abinash Verma, director general of the Indian Sugar Mills Association, said on the sidelines of the seminar that rains had returned in September and production should rise in 2017/18.
"Only to talk about Maharashtra we could be talking about another five million tonnes of sugar (in 2017/18)," Plinio Nastari, president of consultants Datagro, said, adding production could rise to 10.0 million to 10.5 million tonnes from the prior season's 5.5 million.
Nastari also said production should rise in the EU, Thailand and Brazil.
"We see the possibility of a more balanced scenario," he said, noting there could be a modest surplus of up to 2 million tonnes or a small deficit of up to 1.5 million.
Major sugar exporter Thailand experienced its worst drought in more than two decades earlier this year because of the El Nino weather pattern.
"This year Thailand has produced 9.4 (million tonnes of sugar). Next year it could be 11.0 or 11.1 (million)," Nastari said. "These factors are conspiring against the deficit."
EU OUTPUT RISE
EU sugar output is expected to rise following the abolition of quotas next year which will enable its most efficient producers, particularly in France and Germany, to expand.
Analysts say EU output could rise by about 3 million tonnes in 2017/18 although the head of the EU's second-largest producer, Germany's Nordzucker, cautioned the operational challenges could slow growth.
"I think production in Europe will go up. I don't think it will go up to the tune that everyone talks about," Nordzucker AG Chief Executive Hartwig Fuchs said.
Producers in Brazil are also still looking to expand despite the recent decline in dollar-denominated prices, cushioned by the weakness of its currency in the aftermath of Donald Trump's win in the U.S. Presidential election.
"The incentive for sugar remains in spite of the fall in New York (ICE raw sugar) prices in dollar terms because of the depreciation of the real," Nastari said.
"There is a condition (profitability) for the planting of cane at this moment which could be ready for harvesting at the end of 2017," he added.
(Reporting by Nigel Hunt; Editing by Veronica Brown and Susan Thomas)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)