News
01.03.2010
Sugar retains 'very bullish' market dynamics
The case for investors to buy into sugar remains "fairly intact" despite this week's sell-off, which paid little heed to the crop's supply and demand fundamentals, Fortis Nederland has said.
This week's sugar price drop, which topped 10% on Friday to pass the recognised mark for a "correction", reflects largely one-off technical factors, such as a sell-off by speculators, the bank said.
On a supply-and-demand basis, the market retained its tightness prompted by a second successive year of production falling behind demand, taking the key stocks-to-use ratio to a 20-year low of 32%.
"The futures prices have become disconnected with the physical side of the market," Fortis said in a monthly report.
"The bullish case… remains fairly intact".
'Very bullish factors'
Besides noting that sugar prices in China remained near contract highs, the bank forecast that the US would probably need to "step up" its imports "in the next few months" given the prospect of weak production in Mexico, a key supplier.
Mexico may be able to supply only 400,000 tonnes of the 540,000 tonnes the US Department of Agriculture has anticipated.
"In the immediate term, there remain some very bullish supply-demand factors taking place," the bank said.
Meanwhile comments last Friday from the Indian prime minister's economic advisory panel that white sugar stocks could "rapidly approach the nil level", and urging imports of 3m-5m tonnes should, Fortis said, "have put even more fire into the futures market".
Turnaround imminent?
"All-in-all, [this is] hardly the sort of fundamental news that provokes a sell-off – but as with other commodities, sugar futures' prices are currently under the sway of factors other than the physical markets," the report added.
"That may not last too long, however."
New York raw sugar for May closed 0.4% lower at 23.60 cents a pound, while London's May white sugar contract ended 1.3% higher at $670.50 a tonne.
Agrimoney
