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29 Dec 2020 | 10:00 UTC — London
By Rebecca Li
Highlights
EU likely to remain a net importer in 2020-21
UK likely to import more raw sugar in 2021
Availability, effectiveness of vaccines could impact consumption
London — EU sugar production in the 2020-21 campaign (October-September) is set to fall for the third consecutive year due to unfavorable weather, a high incidence of virus yellows due to the ban on neonicotinoid pesticides and a smaller acreage.
As far as trade flows go, Brexit and the rollout of COVID-19 vaccinations will continue to be in focus in 2021. Looking further ahead, S&P Global Platts Analytics expects EU+UK production in 2021-22 to increase on the year.
Poor EU crop prospects are likely to cause the EU to remain a net importer in 2020-21. One trader said that there could be a sugar deficit of 2 million mt and that "it will be hard to find [this volume] to make up for the deficit."
The trader also said that, "although the EU can't supply [regionally], it still has to export due to its long-term obligations."
Platts Analytics estimates the 2020-21 EU sugar deficit at 1.585 million mt, almost five times the 343,000 mt in 2019-20.
Another market source said they expect the EU to "export almost nothing, or a minimum" outside of these long-term contracts in 2021.
The uncertainty surrounding India's export subsidy has supported global prices in recent months.
EU market participants were concerned that, if India ultimately decided not to re-instate the export subsidy, the resulting high world sugar prices would reduce imports significantly. However, imports to the EU would still likely exceed exports.
India's cabinet approved the government's sugar export subsidy in mid-December, which is expected to facilitate exports of up to 6 million mt in the 2020-21 season. Sources have said that this could cause world market prices to fall and in the EU market, this could mean competitive imports weighing on domestic prices.
Brexit negotiations are still underway. In a so-called "no deal" scenario, EU white sugar imported to the UK would incur a duty of GBP350/mt ($464/mt), rendering EU white sugar uncompetitive on the UK market.
The UK has a sugar deficit and meets its requirements through imports from the EU, principally from France, and the global market. The UK is set to implement a new duty-free raw sugar import quota of 260,000 mt from any origin in 2021. This, coupled with high import duties for EU white sugar and poor UK and French crops in 2020-21, could mean the UK increasing its imports of raw sugar from the world market in the coming year at the expense of white sugar from the EU.
The import quota will likely encourage raw sugar imports by the UK regardless of the outcome of a Brexit trade deal. Although a no-deal scenario would result in higher import duties for EU white sugar, market participants generally feel that Brexit would result in a larger impact on the internal restructuring of the UK market in the immediate future, rather than on the EU market. This is especially so as the EU will be grappling with tight stocks before the new crop arrives towards the end of 2021.
However, Brexit could also impact the EU-27 market. In the event that French sugar is no longer being exported to the UK, this sugar could find its way to countries in southern Europe such as Italy and Spain.
Questions surrounding consumption will continue going into 2021. While lockdowns and travel restrictions are still in place across the continent, most countries in EU+UK are developing plans to roll out coronavirus vaccines. The European Centre for Disease Prevention and Control is expected to publish a new interim report in January.
One source said that the widespread availability, and effectiveness, of vaccines could determine if people will "return to normal life" by the summer. Another source said that "tourism would be a huge factor" in determining whether consumption returned to pre-pandemic levels.
Assuming a return to pre-pandemic conditions, Platts Analytics expects consumption to rebound 1% year on year in 2021-22 to 16.863 million mt.
Platts Analytics expects EU+UK sugar production to increase in 2021-22 to 17.246 million mt from 16.312 million mt this season based on a return to normal weather and France's decision to lift the ban on neonicotinoid pesticides to combat virus yellows. The decision to authorize the use of neonicotinoids for three years is expected to stabilize French beet acreage, which has been declining in recent years.
Platts Analytics expects a 0.6% year-on-year decline in EU+UK sugar beet acreage to 1.601 million hectares in 2021-22. Germany is expected to post the largest drop due to expectations of a continued ban on neonicotinoids in many parts of the country and because a lack of support from the European Commission could cause growers to switch to other crops.
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