Written Commentary
ADM Appoints Monish Patolawala as EVP and CFO
July 10, 2024
Written by Howard Jenkins, Head of Global Commodities
The week has seen the market volatility continue with both whites and raw spot month hitting contract highs. While the London market has seen the spot month surge recently over concerns of container availability the action in New York had been somewhat more subdued. This changed dramatically on Wednesday when prices rocketed higher surging past the January highs and pushing above 17 cents for the first time since April 2017. In hindsight it would appear one or two shorts decided to cut positions and roll aggressively down the board as prices soon dropped back. Currently, prices are some 60 points lower and back in the range seen before the spike higher. The London March contract expires today with a healthy 450-500k tonnes looking on the cards to be delivered. The continuing sharp backwardation of the market is still reflecting the concerns over shortage of containers.
The global shortage of containers continues to impact. The issue has arisen because of the pandemic and its spread from East to West. Containers shipped from Asia to North America and Europe started to pile up as lock down restrictions meant the empty containers did not go back to Asia. The easing of the pandemic in Asia exacerbated the situation as more containers were shipped out of Asia. In the US and Europe the restrictions not only impacted on ports but also cargo depots and inland transport. As border controls tightened and customs took longer for clearance the situation worsened. To make matters worse new production of containers has been low. The scrapping of old containers exceeded the manufacture of new. However, now restrictions are finally easing across the world and China is upping its container production the situation should start to improve although many do not see things getting back to normal until second half of this year.
Analysts and traders are now starting to look at production and consumption of sugar for next season. Many are starting to predict a jump in production and only modest improvement in consumption resulting in a global surplus in 2021/22. Indian production is feared likely to hit a record level with some prediction a total of 35 million tonnes. Thai production is expected to bounce back from it’s very poor current harvest with production improving to over 10 million tonnes. US production is expected to improve meaning less imports from Mexico which also may see higher production. Two major producers where things are more uncertain. The EU plantings will give an indication to their potential production while in Brazil’s CS uncertainty over the damage that winter drought caused lingers. Additionally, ethanol demand appears to be improving. Unica reported that ethanol sales in Brazil were higher in January than the same period last year – the first time since the pandemic started. However, with 70% of the expected sugar production already priced and ethanol still uncompetitive against sugar it is unlikely to make too much difference. Prices would have to see a serious collapse before Brazilian mills would be tempted to buy back their pricing. Consumption is, as usual, tricky to predict. Much will depend on the successful vaccine roll-out across the world. Whether this will mean consumption will improve to significantly above pre-pandemic levels remains to be seen.
Despite predictions of a surplus for next season nearby physical demand suggests prices are unlikely to collapse especially when Indian exports are being hampered by container shortages and the inability for key buyers such as Iran to be able to pay for imports. Because of this some have suggested Indian exports may only total 4.5 million tonnes by the end of the season. Of course this will mean huge stocks building in India which will cause internal prices to drop and add to the available sugar later in the year. The funds, of course, will have their say. They have trimmed their long position recently but seem unlikely mass liquidate. Shipment issues, food inflation concerns and Chinese demand for many commodities should see them maintain their bullish stance across agricultural commodities.
Contact the ADMISI Sugar Desk team:
Howard Jenkins, Kevin Watkins, Steven Trigg
Phone: +44(0) 20 7716 8598
Email: admisi.sugar@admisi.com
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