26 Dec 2023 | 01:00 UTC

Asia sugar market to navigate lower cane output, changing import demand in H1 2024

Highlights

Lower sugar production forecast in Thailand, India

India's sugar/ethanol policy changes in focus

Participants to monitor logistical challenges

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The Asian sugar market sail into 2024 with headwinds of supply chain disruptions and cautious import demand amid historically high price levels. NY#11 sugar futures contract prices scaled to 12-year highs in April and continued to peak around 28 cents/lb levels in November. Facing ever-changing weather conditions and varying trade dynamics driven by policy changes, sugar prices in 2024 look to be heavily swayed by these fundamentals.

Thailand sees drop in supply

Thailand's cane crush and sugar production estimates have been reduced in light of the effects of the El Nino climate phenomenon bringing about unpredictable weather, such as irregular rainfall during the planting season. S&P Global Commodity Insights estimates the cane crush and sugar production for marketing year 2023-24 (October-September) at 85 million mt and 9.8 million mt, respectively. Thailand's 2022-23 sugar harvest was completed April 6, with 93.9 million mt cane crushed and 11.02 million mt sugar produced.

"Low rainfall during the sugarcane early growth stages contributed to the smaller production from the new crop. However, increased rainfall since September has been beneficial for cane crush estimates. Nonetheless, sugar exports for Thailand will still be smaller in 2024," according to a Singapore-based trader.

The country's Office of the Cane and Sugar Board has set the start of the crushing season for Dec. 10.

"Some mills have started the crushing in line with the date set by OCSB and about 32 of the expected 56 operational mills were running by mid-December," said a Thai miller.

Lower output from India

Beyond Thailand's tight production, India's sugarcane crop also suffered from the effects of El Nino. The 2023 monsoon rainfall in India hit a five-year low -- the lowest since 2018 -- and delivered erratic precipitation across the major crop-producing regions of Maharashtra and Karnataka. August was the driest month in over a century, according to the Indian meteorological department.

As such, market estimates for the India sugarcane crop have been moving to the lower end of the range, noting that the lower rainfall has dented yields. Mounting concerns in the fourth quarter have revolved around tight supply going into first-quarter 2024 for the global sugar market, before Brazil's crop kicks in.

"There is still no sugar export quota for the new crop, and I feel that this will not change until the election is over in May because the government needs to keep sugar prices at an acceptable level," an India-based source said.

In a surprising turn of events, the government announced the prohibition of using sugarcane juice and sugar syrup for ethanol (opens in a new tab)in Ethanol Supply Year 2023-24 (November-October) with immediate effect Dec. 7. The order was subsequently revised(opens in a new tab), allowing mills to divert 1.7 million mt sugar in 2023-24 on Dec. 15 from cane juice/syrup and B molasses.

S&P Global currently estimates sugar production at 32.75 million mt after diversion of 1.8 million mt to ethanol.

Platts assessed Thai HiPol March-May 15 shipment at 130 points over the ICE London No. 11 March futures on Dec. 21, following the initial shift in India sugar/ethanol policy, according to S&P Global data. The selloff in sugar prices persisted amid the policy changes from India coupled with a bumper crop in Brazil's Center-South pushing production estimates higher and signs of investments in Brazilian port logistics.

Offers were seen drying up from the Thai HiPol market upon the collapse of the NY#11 prices and buyers were now trying to time their purchases.

India's ethanol procurement prices have yet to be announced for the 2023-24 season, but market expectations are at a 3%-5% increase year on year. Government directives would continue to be keenly watched going into 2024 for further views on sugar production and ethanol diversion, which would strongly impact global sugar prices.

Asia demand in focus

Mounting concerns on sugar supply from Thailand and India -- two of the largest producers globally -- have prompted an increase in prices. This has also trickled down to impact prices for domestic consumption, with sugar having become one of the commodities that contributed to inflation in 2023.

Indonesia saw a decrease in sugar imports in 2023 due to underutilization of import licenses by domestic sugar mills. Mills have turned to using stocks from domestic sugar output as global sugar prices soared to new heights, according to market sources.

However, this is expected to change going into 2024 with imports expected to rise amid the fall in NY#11 sugar prices. Trade participants said arbitrages are now much better for raw sugar imports with prices falling to around 21-22 cents/lb following the changes brought about by India's sugar/ethanol policies. Freight prices have been largely rangebound in 2023 after seeing some relief since the pandemic but would continue being a crucial factor for Indonesia's import prices in 2024.

Market expectations for 2024 sugar imports by refineries are around 3.6 million mt and about 900,000 mt for mills, with talks that the import permits should be coming out in late December.

For refined sugar, the Philippines Department of Agriculture is looking to limit the importation of sugar to 200,000 mt in 2024, assuming that there are no adverse weather conditions impacting its domestic crop.


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