AFKI Commodities Report: Sugar Price Outlook Remains Bearish

Reversing last week’s brief uptick to near 16 cents a pound on Aug. 21, raw sugar for October on ICE Futures U.S. in New York touched a seven-month of 15.30 cents a pound on Aug. 25 before recovering to finish at 15.60 cents at midweek and some 0.04 cents below last week’s close.

Amid a market weighed down by a global glut of the sweetener, ICE raw sugar futures got a boost after Brazil’s sugarcane industry association, Unica, on Aug. 26 reduced its forecast for the country’s 2014-2015 Center-South cane crop. The industry body pegged output at 545.9 million tonnes, down 5.9 percent from its initial forecast of 580 million tonnes in April.

Unica said some states in the Center-South, which is Brazil’s main cane-growing region, had suffered excessive rain which had delayed harvesting, while others had been more badly affected by drought early in the year than previously had been thought. Cane yields already are about 10 percent lower than a year ago and Unica expects them to drop further as the harvest progresses.

However, sugar output in the Center-South so far this season still is 6.42 percent up on last year at 17.9 million tonnes through the first half of August, the association said.

Furthermore, the global sugar  market is likely to see a fifth year of supply surplus this season, according to the London-based International Sugar Organization (ISO), which released its latest Quarterly Market Outlook this week.  In its first estimates of the 2014-2015 season, starting Oct. 1, the ISO is forecasting a global production surplus of 1.306 million tonnes.

Despite the smaller supply surplus compared with the prior year’s 3.991 million tonnes, the sugar body warned that global fundamentals are unlikely to support a rise in market values from current values.

“Any possible price recovery brought by production shocks over the course of 2014-2015 might be muted by the huge stocks accumulated since the beginning of the surplus phase in 2010-2011,” the ISO said.

Four successive seasons when production has exceeded consumption already have driven up global stocks to 78.009 million tonnes as at the end of 2013-2014, according to the organisation’s data.

White, or refined, sugar on London’s NYSE LIffe finished at $426.15 a tonne, basis the October contract, $6.65 off the six-month low of $419.50 recorded on Aug. 19.

Arabica coffee rallies

Arabica coffee futures on ICE rallied this week as concerns about the size of the arabica coffee crop in top grower and exporter Brazil  this season and next continued to stalk markets.  Prolonged drought conditions in the country’s key coffee-growing regions in January and February have been expected to reduce output in 2014-2015 (Apr. 1-March 31) but there has been uncertainly over the extent of the damage. In recent weeks, worries have increased that 2015-2016 output will also be affected following cases of early blossoming of the country’s arabica coffee trees. The early flowering is attributed to the prolonged drought-induced stress experienced earlier this year.

A forecast by a leading German coffee trading company this week reinforced the fears that next year’s Brazilian arabica coffee crop will be impacted. Hamburg-based Neumann Kaffee Gruppe pegged the country’s coffee crop next season at 45 million 60-kg bags, some 2.7 million bags less than forecast for the current crop year’s at 47.7 million bags.

ICE December arabica coffee rallied 5.7 percent to touch $1.99 a pound following the German trading house’s  forecast on Aug. 26, and briefly touched $2.0270 a pound the following day, a four-week high,  before settling at $1.9815.

November robusta coffee futures on Liffe finished one percent higher on the day at $2,051 a tonne at midweek.

ICE cocoa futures reached their highest since May 2011, basis the second-month contract at midweek, with December touching $3,300 a tonne on Aug. 27, before settling sharply lower at $3,208. Liffe December cocoa finished at £2,024 a tonne, not far off last week’s three-year high of £2,050 a tonne.

ICE cocoa futures are up around 21 percent and Liffe futures some 17 percent so far this year as speculators bet on a global deficit in 2014-2015.

Gold bounces off two-month low

Gold bounced back a tad at midweek after falling to its lowest in two months last week amid receding investor demand as the U.S. dollar and global financial markets rally. Gold for December delivery on Comex settled at $1,283.40 an ounce on Aug. 27 after moving up to around $1,290 earlier in the day.  December gold had slipped to $1,273.06 on Aug. 23, its lowest since mid-June. Analysts believe geopolitical concerns underpinned this week’s upward move, which came despite continued pressure from the firm U.S. dollar and stronger equity markets.

Geopolitical concerns certainly came to the fore again on Aug. 28, with reports circulating that Ukraine’s president Petro Poroshenko has accused Russia of sending troops across the border to support pro-Russian separatists fighting in eastern Ukraine. Russia has denied the move.

December gold on Comex had traded as high as $1,297.40 an ounce on Aug. 28 at the time of writing.

Nevertheless, physical demand for the precious metal remains weak in key markets in Asia, namely China and India. Reuters reported July net gold flows into mainland  China from Hong Kong fell to 22.107 tonnes from 40.543 tonnes in June, their lowest in three years.

Palladium was trading as high as $901.40 an ounce, basis the December contract, on the New York Mercantile Exchange (Nymex) on Aug. 28, following the latest news from Kiev.

The most active contract  on Nymex had reached $902.75 an ounce, the highest for the most-active contract since Feb. 22, 2001, on Aug. 18.

Palladium has risen by more than 25 percent since March this year on worries over the fallout from Russia-Ukraine tensions. As reported here previously, investors are worried that Russia, which is the world’s biggest supplier of the precious metal, may reduce its palladium shipments to export markets in retaliation for U.S. and E.U. economic sanctions against the country for its involvement in Ukraine.

Concerns over further labour strikes in South Africa, the second largest producer of palladium and the world’s biggest platinum producer, are also fuelling supply concerns.  According to a Reuters news report early this week,  platinum group metals producer Lonmin aims to cut around 5,700 jobs, about 21 percent of its South African workforce, as part of a drive to restore profits after a five-month labour strike this year. Quoting two unidentified mining sources, the news provider said the plan would see the closure of four to six of the company’s 11 shafts.

Lonmin, however, has said the press speculation is “entirely without foundation”.

“No decisions, about the size and shape of any restructuring of the business, have been made,” the company said in a Aug. 26 statement. “Lonmin’s immediate focus following the five-month strike is to achieve a safe ramp-up of production in order to rebuild the business and restore profitability.”

Anglo American Platinum (Amplats), whose South African mines were also affected by the five-month industrial dispute, earlier said it plans to sell or spin off a number of the mines that were closed during this year’s strike.

Impala Platinum (Implats), the third producer affected by the platinum belt mine strike, said in a Aug. 28 results statement, it has initiated a comprehensive strategic re-planning exercise “to assess the full impact of low pgm prices and the strike consequence”. The company reported headline earnings per share were 74% lower at 86 [South African] cents  for its financial year ending June 30.

October platinum futures on Nymex had traded a high of $1,431.20 an ounce during trading on Aug. 28 at the time of writing, having settled at $1,419.90 the previous day. In early July, the Nymex October contract hit a 10-month high of $1,515 an ounce.

Oil prices tick up

Crude oil prices this week ticked up from the 14-month lows in the case of Brent and a nine-months’ dip for the U.S. benchmark West Texas Intermediate (WTI) as geopolitical worries about  Ukraine and Libya intensify. Brent for October delivery on London’s ICE Futures Europe exchange climbed to $103.50 a barrel on Aug. 26 while October WTI on Nymex reached $94.5 a barrel.

By midweek, however, both Brent and WTI had moved lower once more, with the October benchmarks settling at respectively $102.72 and $93.88 a barrel. Even another fall in U.S. crude stocks last week – by  2.1 million barrels to 360.5 million, according to U.S. Energy Information Administration (EIA) data, and the lowest since Jan. 31, had little impact on price levels.

While Brent moved back above $103 a barrel on Aug. 28 to trade as high as $103.20 and October WTI had touched $95.70, analysts said short of any major supply outages, gains were likely to be limited by the ample global supplies and the continuing weak demand outlook.

October Brent had dipped to a near 14-month low of 101.09 a barrel on Aug. 18 while October WTI dropped to $92.50 a barrel, the lowest for a front-month contract since mid-January.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.