Commodities: Sugar On The Up

Far from the mid-year slump forecast in March and April, sugar is on the way up.

For how long, no one is prepared to say. Some analysts are saying 11 to 12 USc/lb in the next couple of month, but then other analysts were forecasting a price around 8 USc/lb for July in March.

But after rising 16 per cent from the near two year low of 8.52 US on June 5, the price is looking solid.

World supply and demand still looks daunting with more sugar (raws and whites) flooding the market, especially from India which has boosted exports significantly in the past year or so.

But the price of sugar in New York ended at 9.87 USc/lb on Friday, after touching 10.22 USc. That was the highest price for the most current contract since the end of March.

CSR, which is responsible for around 40 per cent of the Australian crop, rose 3c on Friday to $3.57.

It's more a takeover situation than a commodity rebound play with Ron Brierley's GPG group in the register with around 6 per cent or so. The company's building products business is also experiencing flat trading conditions.

So why is sugar on a rebound?

The latest reason was an apparent switch from sweetener manufacturing to ethanol production by many mills in Brazil's major producing region: the so-called centre-south region.

Around 85 per cent of Brazil's sugar cane is grown in this area and the mills have cut sweetener output by 8.7 per cent and lifted ethanol output 11 per cent in the first five months of this year, compared to the same period of 2006.

That was seen as being good news because Brazil dominates the world sugar market and can easily switch from sweetener to ethanol production, such is the size of its productive capacity and the domestic ethanol consuming sector (mostly motor vehicles). Rising world oil prices stimulates ethanol demand in Brazil.

But sugar production is still seen as exceeding consumption this year with the world surplus forecast to top nine million tonnes.


Crude oil reached $US 74 a barrel in New York on Friday, the highest since August 2006.

In London, oil rose to a new 11-month high above $US77, thanks to speculative money flowing into the energy markets and International Energy Agency projections of a tight market over the next year or so.

ICE August Brent rose to an intraday high of $US 77.60 a barrel in London.

Brent crude oil has only traded above the $77 a barrel level in July and August 2006.

Nymex August West Texas Intermediate closed up at $US73.93 a barrel.

The International Energy Agency warned again on Friday that OPEC needs to sharply increase its production in the second half of the year to avoid a tight oil market.

OPEC has so far rejected that call and has blamed US refinery problems, geopolitical instability and speculation on the financial markets for the price rises this year.

One of the major influences has been the instability in leading OPEC producer, Nigeria, where an estimated half a million barrels of production a day is shut in because of civil strife in the Niger Delta, the country's major producing region.

The IEA said in its monthly oil market report: "The analysis suggests a sharp rise in the requirement for OPEC crude between a second quarter low point of some 30m b/d and nearer 33m b/d by the fourth quarter."

The IEA said in its first estimate for 2008 that oil demand growth would accelerate to 2.2m b/d in spite of record high oil prices, while non-OPEC supply growth would remain lack lustre for the fourth year in a row at 1.0m b/d.

But the IEA said that an increase in OPEC total production capacity and refinery flexibility would mean that the market would be in "a slightly more comfortable than 2006 and 2007".

Gold rose 55 USc to $US667.55 an ounce troy supported by the weak US dollar in London, while metals were supported by ongoing supplies disruptions and strikes. LME cash copper rose to $US 8090 a tonne, while lead hit a fresh all-time high of $US 3,036 on fund buying.

But in New York, gold and silver fell

August Comex gold fell $US1 to $US667.30. That was up 1.9 per cent on the week and 4.8 per cent for the year.

Silver futures for September delivery fell 7 USc to $US13.11 an ounce on Comex. The metal is up 1.4 per cent this year and 2.8 per cent last week.

New York copper closed at $US3.5930/lb and Chicago Wheat ended at $US6.2075 a bushel.

LME cash nickel ended at $US33,400 a tonne, down $US3,000 a tonne in three weeks.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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