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China imports and Brazil weather playing a key role

Friday, 22 June 2012


Prices declined during the early part of this reporting period (4 to 15 June) but climbed back to just above the US20c/lb mark at the end of the fortnight. Prices on the global market are being impacted by the global economic outlook as well as the fundamental surplus on the market.

During the second week of this reporting period we saw a significant increase in price volatility, with seasonal factors, particularly in Brazil, starting to come into play as they often do at this time of year. The July’12 contract opened at US19.06c/lb on Monday 4 June and closed at US20.84c/lb on Friday 15 June. 

China and weather driving market behaviour

Analysts have noted two key factors driving market behaviour and price volatility in this reporting period are seasonal conditions and China’s purchasing activity.

Centre-South (CS) Brazil has experienced heavy rain that is disrupting both the harvest and the shipping program. Logistical difficulties can occur regularly in this region, and combined with the poor weather which is impacting on the actual volume of sugar being produced, traders have developed concerns about the accessibility of shipments scheduled for early July. Analysts noted this led to a lot of market activity, particularly in the trade of the July short position.

China has also played a key role in the market during the past fortnight. Reports this week indicated that with its strong appetite for sugar at the moment, China may relieve some of the pressure on prices if it continues to import raw sugar.

In recent market activity, China appears to have made larger than expected purchases for June and July delivery and analysts have noted the lower prices on the global market at the moment are a strong incentive for China to import sugar to rebuild depleted stocks.

Other importers are also taking advantage of the lower prices to rebuild stocks at this time.

Thailand beats expectations on crop

Although Brazil is experiencing some seasonal difficulties, Thailand is on track to produce a record quantity of sugar in 2012-13. It is expected its total production will exceed 10.24 million metric tonnes (the total volume produced in 2011-12) and exports could reach eight million metric tonnes.

This is a significant turnaround from earlier reports which suggested Thailand may face a reduced crop due to drought. However, the Thai Sugar Millers Corporation has noted that rains have now arrived which is benefitting Thailand’s key cane growing areas.