High stocks will tame sugar prices despite expectations that rising consumption will push a global deficit higher after years of surpluses, the head of the International Sugar Organisation (ISO) said on Wednesday. Jose Orive, executive director of the London-based ISO, told Reuters that sustained low sugar prices due to hefty over-supplies, had stimulated demand and inventories.
An increasing allocation of Brazilian cane to make ethanol, driven by a higher biofuel mix in gasoline and growing demand from Brazilian motorists, would also tighten sugar availability. “Declining stocks, growing consumption, and rising ethanol demand will drive up the deficit,” Orive said. “The low price is also a driver.”
Orive reiterated ISO forecasts made earlier this month for a deficit of 2.5 million tonnes in 2015/16, increasing to a shortfall of 6.2 million tonnes in 2016/17. “Despite our deficit forecast, there will be little reflection on prices, given the accumulation of stocks,” he said. Raw sugar futures on ICE traded near a one-month low this week, under pressure from huge Indian and Thai old-crop stocks struggling to find markets.
The first global sugar supply deficit in six years will yield only a meagre recovery for prices that are likely to hold near multi-year lows in 2016, according to a Reuters survey of 13 analysts and traders. Orive said sugar stocks in Thailand, India and China were substantial but gave no figures. He said the high indebtedness of the Brazilian milling sector after years of low sugar prices, had discouraged new investments in productive capacity in the world’s top grower.
He estimated global sugar consumption would continue to rise at around 2 percent a year in the near term, with risks that a strengthening dollar would drag on import demand. However, import demand by China was expected to remain buoyant due to declining domestic production and drought. “They will be continuing to stock up while prices are low,” Orive said. He cited brisk growth in demand for confectionery in Asia, but said consumption in Europe was falling slightly.