Sugar is retreating from a one-year high as traders judge that record stockpiles in China and accelerating exports from India will more than offset lost supplies from a warehouse fire in Brazil.
Raw-sugar futures fell 8 percent in New York since the Oct. 18 blaze damaged Brazil’s biggest port. Prices will drop another 7 percent to average 17.25 cents a pound in the second quarter, Deutsche Bank AG says. While Brazil’s center south, the largest producing region, may ship 500,000 metric tons less at the peak of its production cycle in the third quarter, that will still leave a global export glut of 1.5 million tons, according to Kingsman SA, a Lausanne, Switzerland-based research company.
The fire that damaged Copersucar SA’s warehouses drove futures out of the bear market that started in September 2012 as supply beat demand for a second year. China, the second-biggest user, will have reserves of 5.48 million tons by September and Indian exports will gain at least 10-fold, the U.S. Department of Agriculture and ED&F Man Commodities India Pvt. say. The drop in prices is cutting costs for Krispy Kreme Doughnuts Inc. (KKD:US) and Grupo Bimbo SAB, the biggest bread maker.
“The world won’t need all those Brazilian exports because we expect primarily the Chinese import demand to slow a little bit because of the stocks they have,” said Jonathan Kingsman, the founder of Kingsman, a unit of McGraw Hill Financial Inc.’s Platts. After the Brazilian fire, “people went through all the numbers and looked at it again and said even if it is restricted, it won’t have much of an effect.”
Futures jumped as much as 6.1 percent to 20.16 cents on ICE Futures U.S. in New York on Oct. 18 and trading volumes rose to the highest since 2008. Prices retreated in three of the five following trading sessions. The July contract is at a 0.17-cent discount to October, from a 0.03-cent premium on Oct. 21, signaling easing concern about supply.
Raw sugar is now 4.9 percent lower since the start of January at 18.55 cents. Futures slumped for five consecutive quarters through June, the longest losing streak since 1991, as prices that reached a record 36.08 cents in February 2011 spurred farmers from Brazil to Thailand to increase supply.
Global sugar demand will rise 2.3 percent to a record 167.3 million tons in 2013-14, as production expands 0.2 percent to 174.9 million tons, the USDA estimates.
The fire at the Port of Santos damaged six warehouses belonging to Copersucar, Brazil’s biggest sugar and ethanol exporter, and destroyed 180,000 tons of raw sweetener. The terminal accounted for about 25 percent of sugar shipments from Santos, which serves the center south, a region that accounts for about 90 percent of national production.
Brazil is the biggest sugar producer and its shipments were valued at $12.65 billion last year, equal to about 5 percent of the nation’s exports, according to ITC TradeMap, a venture between the World Trade Organization and the United Nations. The damage at Santos may exacerbate strains on a transport network already contending with a record soybean crop.
While prices are retreating from the one-year high reached Oct. 18, they’re still 17 percent higher than the low reached in July. Futures had climbed because of concern that wet weather would disrupt Brazilian harvesting. The center south processed 18 percent less cane in the first half of October than a year earlier, Unica, an industry group, said Oct. 21.
The Santos warehouses could be rebuilt in eight to 12 months, according to Archer Consulting, an industry adviser in Sao Paulo. Shipments may be resumed as early as June, Eduardo Sia, a sugar trader at Sucres et Denrees SA, said by phone from Sao Paulo. The conveyor belts and ship loaders weren’t damaged, Paulo Roberto de Souza, chief executive officer of Copersucar, said in a speech in Sao Paulo on Oct. 22. The company has yet to determine the full extent of the damage, he said.
Brazil’s sugar harvest is past its peak this season, which means there is enough capacity at other ports to handle diverted cargoes. A vessel that was originally scheduled to call at two terminals in Santos instead went to one and was due to load the remaining sugar at the Port of Paranagua, according to Williams Servicos Maritimos Ltda., a shipping agent.
When Brazil’s sugar harvest peaks again next year, the biggest buyers may not need the cargoes. China will import 2.5 million tons in 2013-14, 43 percent less than a year earlier, Kingsman estimates. The nation may buy as little as 1.4 million tons, said Robin Shaw, an analyst at Marex Spectron Group in London. China was the second-biggest importer of raw sugar last season, after Indonesia.
Krispy Kreme, based in Winston-Salem, North Carolina, is locking in lower prices by making forward purchases, CEO James H. Morgan said at a conference in New York on Sept. 11. Grupo Bimbo, based in Mexico City, benefited from lower sugar costs in the third quarter, CEO Daniel Servitje Montull said on a conference call with analysts Oct. 24. Sweeteners are among the company’s most important raw materials and it hedges four to nine months into the future, he said.
India, Pakistan and Thailand, which combined produce 23 percent of the world’s sugar, typically start their harvests from September through November. Thailand, the second-biggest exporter, will ship a record 8.5 million tons in 2013-14, the country’s Office of the Cane and Sugar Board forecasts. India will send as much as 3 million tons overseas, from no more than 300,000 tons a year earlier, ED&F Man India, a unit of the London-based raw-materials trader, said on Sept. 16.
“You have India, you have Thailand and you have Pakistan, so it’s not a complete disaster because these three main markets all have surpluses,” said Paul Baksh, the head of sugar and ethanol at ICAP Energy Suisse SA in Geneva. “Anyone who might need something isn’t that fussed.”
Al Khaleej, the world’s biggest sugar refinery, bought 25,000 tons of raw sweetener from India last week, said Cyrus Raja, a general manager at the Dubai-based company. Al Khaleej usually buys sugar from Copersucar, he said. The company had already bought 50,000 tons from India before the fire, with sugar from the Asian nation $10 to $15 a ton cheaper than Brazilian supply, according to ICAP.
“The whole Copersucar affair is a non-event,” said Shaw of Marex Spectron. “It hasn’t destroyed much sugar, it destroyed 180,000 tons, we know that, and it’s going to make it complicated and more expensive for buyers to receive their sugar next year. But I don’t think it changes a thing.”
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