Front-month raw sugar contract posts fresh six-month low, sheds 27% in 25 days

The front month (May) New York raw sugar futures contract posted a six-month low of 10.99 cents/lb on Monday, as the ongoing coronavirus pandemic and its impact on oil prices continued to put pressure on global sugar prices and the commodity complex as a whole.

The May contract was trading above 15 cents/lb as recently as February 21, as the commodity enjoyed a bullish run in early 2020, following downward revisions to expectations for the Thai sugar crush, particularly around the time of the Dubai Sugar Conference in mid-February. However, sugar analysts have, over the past few weeks, been forecasting a reduction in global sugar consumption following the dramatic spread of the pandemic across Europe and the Americas.

Global year-on-year sugar demand growth might fall to 0.2% in 2020 from a previous forecast of 0.9%, before the outbreak was factored in, according to presentations at the Datagro conference March 11. Most of this drop in consumption is expected to come from China, where the demand is expected to be reduced by 600,000 mt, according to conference's presentations.

Despite a decrease in demand expectations for fiscal-year 2020, Brazilian traders say demand for prompt white sugar has surged over the last week. According to traders, the increase in demand was in response to weaker outright prices. S&P Global Platts assessed 150ic in containers FOB Santos for April shipment at $316.49/mt or 9.59% lower than on March 6, when Platts first assessed this shipment period.

In the raw sugar market, the lower outright price has also triggered demand in the inter-trade market. May shipment was heard to trade Monday at a 9 point premium to the ICE NY11 May (K) futures contract. The trade was in line with Platts' assessment for the May shipping period on Friday.

The overall macro-economic impact of the pandemic is bearish for global sugar prices. In the oil market, the benchmark front-month WTI price traded below $30/b Monday for the first time since early 2016 on expectations of reduced consumption. A lower crude price results in less competitive ethanol and therefore the Center-South Brazil sugar mix could alter, adding a bearish supply side fundamental.

Brazil's Center-South region, the world's largest sugarcane producer, is expected to start its 2020-21 crop shortly and there is a strong consensus that Brazilian mills might deliver near 32 million mt to the global market, or 6 million mt more sugar than in the current 2019-20 crop.

The depreciation of the Brazilian real from 4.03 at the turn of the year to 4.79 Friday also points toward cheaper sugar prices. A weaker real against the dollar means that raw sugar, priced in dollars, becomes more attractive to producers than hydrous ethanol in the domestic market.

On Friday, Platts assessed hydrous ethanol ex-mill Ribeirao Preto converted to raw sugar equivalent at 11.63 cents/lb, the lowest level since August 2018, when hydrous ethanol production in Center-South Brazil reached an all-time high in the first 15 days of August of 1.6 billion liters. The spread of the coronavirus in Brazil, the largest Latin America economy, might cap fuel consumption in the next month, putting additional pressure on hydrous ethanol prices.