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Premium prices for Australian sugar in Asian markets

Tuesday, 22 May 2012

 

Two key features of the sugar market in the Asian region are that it has the strongest consumption growth in the world and it is in a structural deficit for sugar supply.  Each year around 3 million tonnes of sugar need to be imported from outside the region to fill this supply deficit.

For sugar sold into the region, this supply deficit results in a premium to the ICE11 futures price. This is often referred to as the Far East Premium.  This premium, on average, reflects the difference in freight cost to supply regional markets between Brazilian and Thai or Australian sugar.

The premium displays some volatility in response to short-term supply and demand factors and changes in freight rates. At the moment, the premium is increasing for several reasons:

  • The Thai crush has recently come to an earlier than anticipated end and production did not meet projections that 100 million metric tonnes of cane would be processed.
  • Despite recent moves from the Indian Government to allow unlimited sugar exports, more Indian sugar is being retained for the domestic market. This is because of the relatively high domestic prices currently on offer, as compared to returns from exports.
  • China is buying sugar in greater levels than in recent times to replenish stocks.

All of these factors limit the physical sugar available on the market. This limited supply adds to the existing structural sugar deficit in Asian markets which underpins demand.

This tightness in the market should help sugar prices find support – which have otherwise been under pressure due to a recent downtick in the global market. This will help support QSL’s pool returns for the 2012 season.

QSL’s capability to ensure consistency of quality for customers is key to maintaining the long-term, sustainable business partnerships that are a fundamental strength of our business. These customer relationships also help underpin strong demand for Australian raw sugar which in turn supports the price premium Australian raw sugar commands in Far East markets.

We continue to see strong demand on the horizon and we are currently forecasting a record Seasonal Pool return for the 2011 season of $510 to $520 per IPS tonne.