London, 1 February 2010

The year started with a surge in the sugar price which spiked at 29.80c/lb in January, as investors assessed the continued shortage of supply and the depletion of stocks among the major producers, according to Czarnikow Group, one of the UK’s oldest sugar traders. Sugar ended 2009 strongly, with prices closing at 26.95c/lb, up nearly 100% over the year. Many of the bullish physical factors that contributed to this are still left to play out in 2010.

The 2009 rally was made all the more impressive by similar rises in domestic prices in all important sugar economies.
In India, where the government has traditionally managed domestic prices by releasing additional tonnages when prices are high, last year’s deficit resulted in stocks being drawn below minimal levels with some regions running short of sugar.  The government release mechanism has ceased to function as a means to control price.

In China, one of the few countries with comfortable opening stock levels, prices rose significantly during the final quarter of 2009. While the government’s stock-release programme, and recent moves to reduce speculative involvement, have since seen prices fall back, the fundamental reasons behind higher prices remain in place. China is at risk of having to replenish stocks from world market imports later in the year.

In Brazil, the world’s fourth largest consuming market and the world’s largest producer and exporter, domestic prices are now at a premium to world market reflecting the risk that the domestic sugar market, alongside the domestic ethanol market, could run short of sugar prior to the new season beginning.

The rise in futures market values has been repeated in many domestic markets across the world reflecting tight physical balances and confirming our view that stock levels are insufficient to carry the market through a second deficit year.

Toby Cohen, head of analysis at Czarnikow, said: “Despite the rise in the price of sugar last year the full impact of the supply problems which triggered last year’s doubling of the sugar price, are still to be recognised. The key sugar-producing economies ran down their stocks last year, which means they will be restricted in regulating supply and, therefore, moderating sugar price rises in 2010. While price spikes may be temporary, it seems the era of low sugar prices is now over.”

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