Sugar samples are displayed at a store in the Vashi Agricultural Produce Market Committee (APMC) wholesale market in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Little Love for Sugar Even With One of the Best Rallies in Years

(Bloomberg) -- Sugar’s biggest rally in a decade isn’t convincing many of a sustained turnaround for the worst commodity in recent years.

London’s Sugar Week kicked off Monday on the back of raw sugar’s best weekly gain since 2008, a surge driven by a stronger currency in top producer Brazil. But it’s still one of this year’s worst performers, and there was little consensus among traders, brokers and analysts gathering in London that prices will climb much further.

Little Love for Sugar Even With One of the Best Rallies in Years

The cautious outlook is mainly down to India. Following a bumper harvest, the No. 2 producer is expected to boost exports, more than offsetting cutbacks in output elsewhere and ensuring yet another year of global surpluses. That’s happening as health concerns are curbing appetite for sugar, led by declining or stagnant consumption in western markets.

"I am not convinced that there is light at the end of the tunnel," John Stansfield, a trader at Group Sopex SA, said at a Marex Spectron Group seminar in London on Tuesday. "The elephant in the room is definitely India.”

Extending a rebound from a decade-low set in August, raw sugar rallied for eight straight days through Tuesday as a stronger real reduced the appeal of Brazilian exports. The sweetener’s gains have since slowed a bit amid signs it has become overbought, with futures trading at about 13.02 cents a pound Thursday.

Here are some key factors for sugar:

Too Much Sugar

World supply will outpace demand by 5.8 million metric tons this season, following a massive surplus of 11.8 million tons a year earlier, according to Sopex. Much of that is down to large production in countries like India and Thailand, and there’s now no limit on European output after quotas were scrapped in 2017.

Little Love for Sugar Even With One of the Best Rallies in Years

Indian Impact

India will be key going forward, and is expected to collect another record harvest. To help struggling mills and cut a domestic glut, India will allow 5 million tons of exports this season, which Green Pool Commodity Specialists says would be an unprecedented amount.

“India has been a hot topic all this week,” Tom McNeill, a director at Green Pool, said in an interview on Monday. “The market would be in a deficit if it weren’t for India. Ultimately, a lot will depend on how Indian millers execute the deals, how the government follows up with subsidies and how the global market reacts.”

Brazil Leads Curbs

Still, there are signs of production cutbacks as refineries in Chile to Syria close amid more output in Europe, according to Sopex. The declines have been significant in Brazil, where dryness has hurt crops and mills have diverted cane to make more profitable ethanol. Brazil’s main growing region is poised to reduce output by 25 percent this season, industry group Unica said.

Dry Europe

Drought and hot weather have also hurt European crops, reducing beets to the size of parsnips instead of rugby balls, Stansfield said. EU production could drop about 10 percent this season, according to Marex.

Planting Switch

Low prices may reduce the appeal of planting sugar. While many EU growers are tied in to long-term supply deals, they should eventually start switching to more profitable crops, ED&F Man Holdings Ltd. said.

“The 2019-20 season will be really the year of change,” said Kona Haque, head of research at ED&F Man.

©2018 Bloomberg L.P.