Raw materials 2020: Thai raw sugar market will find support

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Thai raw sugar prices are expected to find support in the first half of 2020 as demand picks up from key buyer Indonesia, whose stocks are running out following the reduction in import licenses this year. year.

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It comes after a bumper harvest and weak regional demand put pressure on Thai cash bonuses in the previous marketing year, although recent transactions indicate that the hike for 2020 is already underway.

A stronger Thai cash premium is already building, with cargo shipments from March 15 to May 15 next year increasing nearly 70% since early October, to 84 points against the New futures contract. York No. 11 March.

Likewise, cash bonuses for May 15-July 15 cargo shipments were also firmer at 84 points compared to May futures, up more than 60% since October 1.

INDONESIA’S STOCKS DROP BY 10% -15%

Earlier this year, the Indonesian government announced that industrial raw sugar import permits for 2019 would be reduced by 22% from the previous year to 2.8 million tonnes.

Thai raw sugar exports to Indonesia fell nearly 18% year-on-year to 2.69 million tonnes for the January-October 2019 shipment period, according to data from the Thai Sugar Milling Corporation. .

Indonesia is the largest importer of Thai raw sugar and accounts for around 70% of total Thai raw sugar exports.

Indonesian demand for Thai raw sugar drops 18%

Trade sources noted that national stocks in Indonesia are expected to fall 10-15% year-on-year amid lower imports and a reduction in the issuance of additional licenses, which could potentially prompt the government to issue more licenses in 2020.

“The Indonesian government did not release 400,000 tonnes of last-minute licenses until the end of November and December, indicating that the country is running low on sugar,” an analyst told S&P Global Platts.

He added that the expected stronger demand from Indonesia in the first half of 2020 and lower sugar production in Thailand would support prices, outweighing Thailand’s expectation of a large carryover stock of more than 1.5 million tonnes compared to the previous season.

DECLINE IN THALANDS SUGAR PRODUCTION

Estimates of Thai sugar cane production for 2020

To the strength of the Thai cash bonuses are added market expectations for lower sugarcane production in Thailand for the current marketing season (October 2019-September 2020), which will also support the value of the new crops. next year.

An increase in Thai raw sugar cash premiums for the new crop is evident in Thailand’s latest B-quota tender on December 5, where premiums have increased by almost 50% from October.

Drought and weak monsoon in Thailand’s main cane-growing areas during the crucial growing season would also cause cane development to slow down and sugar yield to be reduced, trade sources said.

As a result, the cane crushing season, which typically runs from mid-November to late November, has been postponed to early December of this year.

“Central Thailand will not start grinding until mid-December due to the poor development of sugarcane cultivation, while northeast Thailand will start grinding in early December,” he told Platts an agronomist based in Thailand.

A survey of trading houses and analysts showed a lower estimate of cane production between 100 million and 110 million tonnes, with a median of 108 million tonnes, down 22% from the previous season .

IMPACT OF CHINESE DEMAND ON PREMIUM THAI WHITE

Another factor that producers would be watching closely is the Thai white premium environment – the price difference between the fixed price of Thai 45i refined sugar and HiPol raw sugar.

China’s stricter enforcement of cross-border movements of sugar from Taiwan and Myanmar has had the effect of weakening demand for Thai refined sugar, which would continue to put pressure on Thailand’s white premium in 2020.

The average Thai white premium in 2019 was $ 53 / mt, down 23% year on year, from $ 73 / mt in 2018, according to Platts data.

Exports of white and refined sugar from January to October fell 9.2% on the year, while exports of raw sugar fell 4.5%, according to TSMC data.

“If China continues to control the flow of contraband, it would negatively affect the white premium. Producers would then focus on sales of raw sugar rather than refined sugar, ”said a Singapore-based trader.

Thailand's white premium drops 23% year over year

WILL INDONESIAN TRADE FLOWS MOVE FROM THALAND TO INDIA?

While Indonesia has typically supplied most of its sugar needs in Thailand and Australia, measures are currently underway to increase imports from India as part of bilateral efforts to export oil from India. Indonesian palm to India.

Currently, Indonesian regulations allow the import of raw sugar with a minimum ICUMSA, or International Commission for the Uniform Method of Analysis, Sugar level of 1,200.

The government is seeking to reduce the minimum ICUMSA to 600 in order to meet the color and quality requirements of Indian raw sugar. Generally, Indian raw sugar has an ICUMSA level of 400-800.

While the policy change could potentially alter the trade flows of raw sugar from India to Indonesia, several traders were skeptical about the possibility of a policy change anytime soon.

Market sources noted that no trade talks have been reported between India and Indonesia as of yet, and Indonesian buyers are likely to continue to be a major buyer of Thai raw sugar in the first half of 2020.

“Another factor for India to export raw sugar would depend on the [global] the price. If prices stay low, factories would simply prefer to sell domestically, ”a business analyst said.

Raw materials 2020 |  S&P Global Platts

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