Sugar demand returning as futures slip
Published: 03/08/2010, 12:29:35 PM
Physical sugar demand will pick up strongly after prices slid 30% from an almost three-decade peak in the past month, but some buyers will still hold off until prices stabilise, according to Reuters.
Benchmark raw sugar futures SBc1 sank to a low of 21.12 cents a lb this week from the 30.40 cents high on Feb. 1, which was driven by tight global supplies after disappointing harvests in top producers Brazil and India.
The sharp sell-off was triggered by deferred buying tenders by Pakistan and Egypt, which refused to pay prices at the peaks signalling demand destruction for the sweetener.
"There is a saying that you do not catch a falling knife. This market looks like a falling knife," said Sterling Smith, senior analyst at brokerage Country Hedging Inc. in Minnesota.
The rally eroded physical sugar demand, but the percentage of the demolition is difficult to pin down, Smith said.
Now analysts note a significant buildup of pent-up demand by key importers around the world, but say some buyers may hold off re-stocking until prices settle into a range.
"There are several countries worldwide which have an urgent import requirement -- India, but also Pakistan, Bangladesh, Iraq and Iran," said analyst Stefan Uhlenbrock of Germany's F.O. Licht.
"They have delayed purchases. It is likely that they will start to become more active and start placing contracts for imports."
He added, "But it is also possible that they will wait, speculating that prices will fall further."
Analysts said the floor of the sugar market was likely to be near current price levels, due to the tight global supplies in 2009/10 and resilient demand for the sweetener.
"Prices will not likely fall much more," said analyst Heloisa Burnquist of agricultural thinktank Esalq in Brazil.
"A lot of new milling projects that had been in the pipeline disappeared or were seriously postponed with the financial crisis. So, capacity to crush will not be growing annually as much as was once thought."
Veeresh Hiremath, a senior analyst with commodity brokerage Karvy Comtrade in India, said, "The raw sugar market can fall to 20 cents a lb. India will soon trigger global prices as it still needs to import."