A collapse in China’s sugar production is igniting business for Thai millers, drawing down stockpiles and setting the stage for a recovery in prices.
Dry weather and a decline in sugarcane planting means China will produce the least sweetener in a decade next season, according to researcher Green Pool Commodity Specialists. That’s a big opportunity for Thailand. The world’s second-largest exporter shipped four times as much white sugar to China this year through 21 August, data from the Bangkok-based Office of the Cane and Sugar Board showed.
Trading houses and funds are reversing bearish bets on sugar as Thai refining reduces stockpiles of the sweetener, according to independent soft commodities trader Group Sopex. Global inventories that expanded during a five-year glut are expected to fall this year and the spread between U.S. futures contracts has tightened a sign of restricted supply.
“The effective flow of Thai white sugar into China is what is changing the market outlook,” said John Stansfield, a London-based analyst at Group Sopex, who has followed the market for more than 20 years. “It all boils down to a poor crop in China and the prospect of an even worse one to come."
Thai millers looking to supply China turned a record amount of raw sugar into the white variety this season through early August, commodities trader ED&F Man Holdings Ltd. estimated.
While raw sugar is near seven-year low, Rabobank International forecasts prices will average 12 cents a pound in the first quarter, a 12 per cent increase from now. The sweetener still fell 26 percent this year and is heading for a fifth annual loss following the global oversupply.
There are other signs that investors are becoming more positive. In July, speculators were the most bullish on white sugar since at least 2011, data from ICE Futures Europe show. They are still bearish on raw sugar, according to the U.S. government.
China’s sugar output will drop to 9.6 million metric tons in the year starting October, the lowest since the 2005-06 season, said Tom McNeill, director of Brisbane, Australia-based Green Pool. The country is the world’s largest importer of the sweetener.
Bloomberg News, edited by ESM
