Why is sugar bucking the coronavirus trend?

The commodity complex has been on the slide on concerns about oil demand destruction caused the coronavirus outbreak in China, but sugar has bucked the trend.

SUGAR vs S&P GSCI PERFORMANCE

The sugar price has been supported by forecasts for the supply and demand deficit in 2019-20 (October-September) widening, as well as massive speculative buying.

HISTORICAL WORLD DEFICIT/SURPLUS

The deficit is largely down to the weather hitting production in Asia and North America.

2019-20 vs 2018-19: SUGAR PRODUCTION
YEAR-ON-YEAR CHANGE

Can sugar continue to resist?

It remains to be seen if shutdowns and quarantine in China will have a significant impact on domestic sugar demand.

But, with oil prices under downward pressure, ethanol produced from sugarcane is becoming less competitive at the pumps in Brazil, which could curb domestic demand.

This, combined with a fall in the heavily commodity-based real against the dollar, has meant an erosion of spot ethanol’s premium to dollar-priced sugar.

CS BRAZIL: HYDROUS ETHANOL PREMIUM OVER SUGAR

The result of this could be producers in Center-South Brazil, one of the world’s largest sugar-exporting regions, switching away from ethanol toward sugar in their product mix around the start of the new season in April. S&P Global Platts Analytics is forecasting a sugar mix of 37.5% in 2020-21 compared with 34.4% in 2019-20. Each percentage-point change in the mix represents 750,000-800,000 mt a year of sugar.

On the other hand, with the launch of Renovabio program in Brazil and total fuel demand there forecast by Platts Analytics to grow 2.5% on the year, the hydrous ethanol market could be tight.

Looking beyond Brazil for supportive factors, the weather-related falls in Indian, Thai and Mexican production could be greater than forecast.