Fitch Solutions sounded an upbeat note on sugar prices, forecasting them recording their highest average in 2023 for more than decade, spurred by enhanced competition from ethanol for cane.
The analysis group lifted its forecast for the average New York raw sugar futures price this year, on a second contract basis, by 0.2 cents to 18.8 cents a pound.
This estimate “will require prices to trade sideways at around 19.4-19.6 cents a pound” for the rest of 2022, Fitch said.
For 2023, the group hiked its forecast by 1.5 cents a pound to 19.0 cents a pound, well ahead of the analysts’ consensus of 18.19 cents a pound, according to Bloomberg, and a figure which would be the highest since 2012.
The forecast is also well above the level of less than 18 cents a pound implied by the futures curve.
‘Less-than-expected export quota’
Fitch said that its upgrades were “driven” in part by a “less-than-expected export quota announced by India”, which early this month said it would allow 6m tonnes of shipments in 2022-23.
That figure was below the 8m-tonne figure that many investors had expected, besides falling below the exportable surplus of 9m tonnes as calculated by the Indian Sugar Mills Association, although some observers believe that India may yet announce a second tranche of quota.
However, Fitch said that sugar faced growing competition from ethanol for cane too, implying the sweetener having to fight harder for its share through a richer price.
In India, “driven by high prices and a government target of E20 blending, where ethanol represents 20% of blended fuel, being standard by 2025, we anticipate an increasing amount of cane to be directed toward ethanol production…over the coming years”.
Ethanol vs sugar
Meanwhile in Brazil, ethanol prices have been recovering too, “which threatens to cut Brazilian sweetener production”, Fitch said.
According to research institute Cepea, the price of anhydrous ethanol, as blended with gasoline, has recovered by 15.0% from an early-September low, with that of hydrous ethanol, used as an alternative to gasoline in flex fuel cars, up by 26%.
“Demand for Brazilian ethanol has strengthened in Europe due to the war in Ukraine, as countries look to cope with the energy crisis.
“Consequently, we expect demand for Brazilian ethanol to remain elevated throughout 2023, providing upside support for prices.”
‘Upside support for prices’
Thailand will provide some headwind to sugar prices, in lifting its exports to 11m tonnes and offsetting some of the supply shortfalls elsewhere.
“The increase in exports will see Thailand’s share of global sugar exports increase from 15.6% in 2021-22 to 17.4% in 2022-23, which we expect to act as a bearish factor on prices,” Fitch said.
Nonetheless, with world sugar consumption seen expanding by 1.4%, at a time when world output was seen contracting, Fitch forecast “a decline in the global production [surplus] balance from 5.3m tonnes in 2022 to 0.2m tonnes in 2023, providing prices with upside support”.
The outlook is markedly more upbeat than that of Rabobank, which last week forecast prices, on quarter average bases, trading at 16.3-17.0 cents a pound in 2023.
The bank forecast Indian exports of 8m tonnes in 2022-23, and a recovery in Brazilian cane volumes from the frost- and -drought-affected levels of this year.
“The global surplus/deficit balance should see a surplus of 4.6m tonnes,” on an October-to-September basis, the bank said.