The sugar market remained under pressure yesterday, but after further sharp falls early in the session prices staged a fightback.
ICE May raw sugar rose 0.3 per cent to 18.30 cents a pound after sinking 3.2 per cent earlier in the session to 17.66, an eight-month low. Liffe May white sugar lost 0.4 per cent at $519.5 after dropping 2.3 per cent to $509.6.
With white sugar down 32.2 per cent from the record high earlier this year and raw sugar prices down almost 40 per cent from a 29-year peak, dealers were wondering where the rout for sugar prices might end. "Who wants to catch a falling knife?" asked one trader.
The net long position (bets on prices rising) held by speculators remains substantial, according to the latest CFTC data, so dealers are concerned that the market could see further selling pressure if funds decide to close these bets.
Raw sugar prices will drop below 18 cents a pound by April, while white sugar could fall below $500 a metric tonne, according to the Maharashtra State Co-operative Sugar Factories Federation, an Indian producers' group. Prakash Naiknavare, managing director, warned that some buyers might default on earlier agreements to buy. "The sudden sell-off is going to cause a lot of pain and confusion among traders," he said.
Kona Haque, commodities analyst at Macquarie, said: "Raw sugar prices below the 18 cents a pound level would represent very good value considering current tightness in the global market. However, buyers will want to see some signs of prices stabilising before they return."
Macquarie said Egypt, Mexico and Indonesia would need to buy soon and noted that China and Thailand had seen much weaker than expected production this year. "Russia, also, has had a very poor crop this year so imports should rise, particularly after the current import tariff ends in May," said Ms Haque.
Brazil is the world's largest sugar producer and some Brazilian mills should start processing the harvest within days, ahead of the official start of the production season in April.
However, the very sharp fall in prices in recent weeks has reduced the incentive for producers to start early, particularly as sugar yields improve later in the season.
Datagro, the Brazilian consultancy, recently predicted that Brazil could produce about 37.3m tonnes of sugar in the 2010/11 season, up 12.7 per cent on the estimated 33.1m tonnes produced in 2009/10 when the harvest was badly affected by wet weather.
David Sadler, a senior sugar dealer at Sucden Financial, the London-based broker, said that with the market falling so fast, "end buyers are probably tempted to wait and expect lower prices soon".
Trafigura, the Swiss-based commodities trader, said yesterday that it had closed a new syndicated credit facility at $2.32bn after it was significantly oversubscribed, up from a launch target of $1.5bn.
"The support received from the banking community demonstrates the banks' long-term confidence in Trafigura's business model," said Pierre Lorinet, chief financial officer. Trafigura is also sounding out investors about a possible bond issue, its first.
