Commodities 2021: Lower cane output, dwindling demand remain key focus for Thai sugar in H1 2021

Singapore — A second consecutive year of dry weather in Thailand, likely to batter the country's sugar output again, and weak end-user demand as buyers pivot to cheaper origins, will remain the key focus for the Thai sugar market in the first half of 2021.

In view of the high Thai sugar cash premiums currently, analysts expect competition from other major sugar producing countries to intensify and weigh on Thai prices in 2021.

Agronomists in Thailand noted that late rains in H2 2020 across major cane producing areas in the northeast and central regions would improve cane growth only marginally. Cane production is expected to see a 15% downside year on year in October 2020-September 2021 at 65 million-75 million mt, compared to an earlier forecast of 60 million-70 million mt, in a survey conducted with trade houses by S&P Global Platts.

Thailand crushed 74.9 million mt of cane in the 2019-2020 marketing year that ended in September, which translated to about 8.3 million mt of sugar.

"Rain has been good recently, but it came too late and there was poor distribution. Yield will only improve by a little bit," a trader in Thailand said.

Platts Analytics noted that Thai farmers were switching away from cane to other agriculture crops amid the weak minimum cane price of Baht 800/mt in the 2019-2020 marketing season and a lack of water distribution in the country. However, some trade analysts believe the situation will improve in the 2020-2021 season given a higher cane price of Baht 900/mt, and normal rain forecast would boost cane acreages in Thailand.

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UPTICK IN THAI QUOTA B VALUES TO WEAKEN DEMAND

Concerns over supply tightness were supportive of sugar prices, as reflected in the recent Quota B tender results announced between the third and fourth quarters.

The Quota B tender that covers 400,000 mt of raw sugar contracts for a season is issued by several trading houses and sold on behalf of the Thai Cane and Sugar Corporation, which has overall responsibility for pricing and selling raw sugar under this quota.

Results of Thai HiPol 2020/2021 Quota B tender

March-May 15, 2021 shipments

May-July 15, 2021 shipments

July-September 15, 2021 shipments

Source: Market sources

The average tender price for March-May 15 loading cargoes stand at 203 points over NY No. 11 March futures, May-July 15 cargoes at 241 points over May futures and July-September 15 cargoes at 265 points over July futures.

High Quota B premiums will make it difficult for traders to move Thai sugar into destination markets, such as Indonesia and South Korea, which will lead to dwindling physical trading activity in the current season, trade sources said.

BUYERS PIVOT TO ALTERNATIVE ORIGINS

With the unattractive Thai cash premiums, Indonesian refineries since the start of the year started sourcing raw sugar from various origins, including Brazil, India and Australia. Trade sources expect this trend to continue into 2021.

"We are selling omnibus origins to our Indonesian buyers now because it doesn't make economic sense to move Thai sugar. Previously, the buyers predominantly get Thais but it is different now," a Singapore-based trader said.

This came after the Indonesian government allowed the importation of raw sugar with a minimum ICUMSA, or International Commission for Uniform Method of Sugar Analysis, level of 600 versus 1,200 previously.

The new policy paved the way for Indian raw sugar exports to enter the country, which saw over 400,000 mt of imported raw sugar from India to Indonesia from January to November, according to a shipment report seen by Platts.

According to trade analysts calculations, the Thai cash premium equivalent for Brazilian cargoes into Indonesia would be 140-150 points over the New York No. 11 March futures contract, after taking into consideration freight and a tax differential.

In comparison, Thai cash premiums were assessed 30 points higher than the Brazilian parity level based on the monthly average of Platts Thai HiPol first 75-day loading cargoes price assessment in November.

VIETNAMESE IMPORT REMAINS BLEAK

The Vietnamese government in Q3 launched an antidumping investigation on Thai sugar imports, which would weigh on the country's demand for Thai sugar going forward.

Trade sources familiar with the matter said Vietnam could possibly introduce a 37.9% antidumping duty on imported ASEAN sugar in 2021, compared to only 5% currently.

In the beginning of 2020, Vietnam had initially removed import quotas on ASEAN sugar under the ASEAN Trade in Goods Agreement, or ATIGA. However, the surge in Vietnam's sugar imports in 2020 had depressed local prices and reduced production in the domestic sector.

The country imported around 1.15 million mt of sugar over January-October -- 480,000 mt of raws and 670,000 mt of whites and refined sugar -- which was almost five times the imported volume in 2019.

"[Vietnamese] buyers are worried that the new tax could affect them, so they have been buying less in Q4," a Singapore-based trader said.

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INDIAN SUGAR SUBSIDIES RAISES COMPETITION

Trade sources noted that Indian export subsidies announced Dec. 16 would make it even more unfavorable for Thai sugar, that is already expensive, to compete in the Asian destination markets including Indonesia, Malaysia and South Korea.

The Indian cabinet approved a long-awaited export subsidy of Rupees 5,833 ($79.30) for 6 million mt of sugar until September 2021, down from Rupees 10,448 in the previous season.

"Even though subsidies are lower, I believe that India can still comfortably export sugar at 5.2 million mt to 5.3 million mt this season. Indian low quality white prices would also have to trend lower, say $370-$380/mt FOB west coast India, compared to $420-$430/mt before the subsidy was announced," a refined sugar trader in Singapore said.

Trade sources noted that the delay in the announcement of the export subsidies by over three months have resulted in weaker sales during November and December, as the no-subsidy situation made it challenging for sugar mills to sell competitively.

Analysts previously estimated that India's sugar export for the next season could hit 2 million-3 million mt given a no-subsidy situation, halving the total volume exported in the October 2019-September 2020 marketing year.

"It seems unlikely that Thai HiPol premiums can remain at premiums of over 200 points with these subsidies. There should be more downside on Thai prices," a Hong Kong-based raw sugar trader said.