1. Weekly News

Global

Global Sugar Market Remains Uncertain Amid Brazil's Drought and India’s Export Ban

The drought in Brazil has impacted sugarcane quality and sugar mix expectations. However, the rapid harvest pace boosted Brazil’s exports to 3.9 million metric tons (mmt) in Aug-24, providing short-term market relief. Despite this, raw sugar prices remain below USD 20 cents per pound (lb), awaiting stronger bullish signals. Commodity risk management firm HedgePoint Global Markets notes that macroeconomic concerns and weakness in the energy sector, overshadowed positive signals in the market in W36.

India’s potential sugar export ban, aimed at prioritizing a 20% ethanol blending target by 2025/26, has raised concerns about global supply. However, market participants believe India will eventually need to export, especially after Brazil’s production was hit by drought. If prices rise above USD 20 cents/lb, Indian mills may be encouraged to export, but any decision will likely come after the new season begins.

Meanwhile, Brazil’s drought has hurt sugarcane quality, potentially extending the off-season and adding pressure to Mar-25 contracts. However, the country’s high export levels in the short term are keeping the market calm. As Oct-24 contracts near maturity, open positions are decreasing in line with seasonal trends, with further developments in India and global supply closely watched.

India

India Plans to Extend Sugar Export Ban for the Second Consecutive Year

India, the world’s largest sugar consumer and the second-largest producer after Brazil, is facing a potential decline in sugarcane production. In response, New Delhi plans to extend its sugar export ban for the second consecutive year. This move is expected to tighten global sugar supplies, further pushing up futures prices in New York and London. India's sugar output for the 2024/25 crop year is projected to drop to 32 mmt, a decrease from 34 mmt in 2023/24, largely due to unfavorable weather in key producing states like Maharashtra and Karnataka.

While India will continue to meet its domestic sugar needs, its next priority is expanding its ethanol blending program. To reduce carbon emissions, the country aims to increase the share of ethanol in gasoline from the current range of 13% to 14% to 20% by the 2025/26 season. To meet these ambitious targets, India will need more sugarcane. The Indian government is considering a 5% increase in ethanol prices for the new season starting in Nov-24, and it is likely to announce both the extended sugar export ban and the ethanol price hike by the end of Sep-24.

Kenya

Kenya Bans Sugar Imports from Outside COMESA and EAC

On September 10, 2024, Kenya banned sugar imports from outside the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) due to improved domestic production. Kenya’s Ministry of Agriculture reports that sugar production is expected to surpass 800 thousand metric tons (mt) in 2024. Consequently, the government decided not to extend the import window for sugar from non-COMESA and non-EAC countries.

The Ministry of Agriculture indicates that Kenya's average annual sugar consumption is around 950 thousand mt, with the deficit usually covered by imports from COMESA and EAC under trade agreements. Temporary imports from outside these regions were allowed earlier to protect consumers from high prices. Kenya is also cracking down on illegal sugar smuggling to protect its borders and trade commitments.

Vietnam

Vietnam's Sugar Prices Stay High Amid Global Decline

Despite a sharp drop in global raw sugar prices and increased supply due to high exports from Brazil, sugar prices in Vietnam remain high, supported by government protectionist policies. According to Viet Dragon Securities Corporation (VDSC), an agency providing in-depth analysis and insights on various sectors of Vietnam's economy, global raw sugar prices fell to USD 0.41 per kilogram (kg) in Aug-24, a 23.2% year-on-year (YoY) decline, and are unlikely to recover this year due to a balanced global supply-demand situation.

In contrast, the price of An Khe sugar in Vietnam was USD 0.81/kg (VND 20,000/kg) in Aug-24, down by 3.8% YoY, far less than the global price drop. Vietnam, a major sugar importer, benefits from government measures designed to protect the domestic sugar industry, keeping prices stable.

VDSC Research predicts that with continued government support, Vietnam's sugar prices will remain stable through the end of 2024. However, they caution that sugar companies need to secure their purchase prices to protect farmers, as a sharp decline in sugar prices could significantly impact profits. Investors must closely monitor domestic sugar price trends to make informed stock decisions.

2. Weekly Pricing

Weekly Sugar Pricing Important to Producers (USD/kg)

Yearly Change in Sugar Pricing Important to Producers (W37 2023 to W37 2024)

Brazil

In W37, sugar prices in Brazil averaged USD 0.50/kg, marking a 1.96% week-on-week (WoW) drop, but still holding the second-highest level since W25. This price also represents a 6.38% month-on-month (MoM) rise, largely due to supply disruptions caused by fires in key sugarcane regions of São Paulo. Additionally, Brazil has reduced ethanol production from sugarcane since Apr-24, capitalizing on rising sugar prices. Despite these short- and medium-term gains, YoY prices fell by 16.67%, reflecting weaker global demand and increased supply from competing markets.

India

India’s sugar price remained steady at USD 0.50/kg for the fourth consecutive week in W37, driven by a balanced supply-demand situation. However, YoY prices rose by 8.70%, reflecting global supply concerns due to India's ongoing export ban and its focus on ethanol production. The expected increase in ethanol prices starting in Sep-24 will likely further support domestic sugar prices by limiting the amount of sugar available for export.

United States

Sugar prices in the United States (US) averaged USD 0.42/kg in W37, reflecting a 2.44% WoW increase but a notable 28.81% YoY decline. The WoW rise can be linked to concerns over Brazil's sugar production, impacted by drought conditions, and India's potential extension of its export ban. However, the substantial YoY drop is primarily due to increased stock levels, driven by higher domestic production. The United States Department of Agriculture (USDA) projects that initial sugar stock for the 2024/25 season could reach 2.07 mmt, an increase from 1.85 mmt, owing to increased production and sugar imports in 2023/24.

Mexico

In W37, Mexico's sugar prices averaged USD 1.31/kg, a 3.97% WoW increase but a significant 28.42% YoY decline. Despite the WoW rise in USD terms, the price remained stable in Mexican pesos at MXN 25.10/kg, reflecting the impact of exchange rate fluctuations. The YoY price drop is largely due to increased domestic sugar production, with the USDA projecting output to reach 5.5 mmt, representing a 12.70% YoY increase.

Pakistan

In W37, sugar prices in Pakistan averaged USD 0.48/kg, reflecting a 2.04% WoW decline and a significant 14.29% YoY drop. These price decreases are attributed to an oversupply of sugar in the market due to continuous YoY surplus production. Inadequate exports and domestic sales falling below production costs have exacerbated the situation. Although Pakistan authorized the export of 150 thousand mt in Jun-24, it has done little to reduce the surplus of 1.5 mmt, leaving the industry facing unviable market conditions.

3. Actionable Recommendations

Diversifying Supplier Base to Mitigate Global Supply Chain Disruptions

Given Brazil’s current drought and India's intent to extend the export ban, countries and companies reliant on sugar imports should diversify their supplier base. Importers can explore alternatives in other regions with stable production to mitigate risk. Additionally, investing in partnerships with emerging sugar-producing countries can provide long-term supply stability.

Capitalizing on Hedging Opportunities for Price Stability

With raw sugar prices remaining below USD 20 cents/lb and uncertainties around India’s export plans, market participants should explore hedging strategies to lock in current prices. This could protect against potential price surges when India's export ban lifts or Brazil's drought continues. Using commodity futures contracts and working with commodity risk management firms can help stabilize costs in an unpredictable market.

Strengthening Domestic Sugar Production and Trade Alliances

Countries like Kenya, which are seeing improved sugar production, should focus on strengthening local industry through technological advancements, subsidies for farmers, and sustainable practices. Additionally, maintaining strong trade relationships with COMESA and EAC countries ensures that any production shortfalls can be supplemented through regional trade agreements. This approach not only protects domestic consumers but also strengthens the region's trade standing.

Sources: Portal Do Agronegocio, Vietstock, Vinanet, All Africa