China’s sugar stocks are nearly depleted and the country will need to import 3 million tons a year to keep pace with demand, according to Societe Generale’s Emmanuel Jayet.
The problem stems from a significant slowdown in domestic sugar production in China, with this year’s crop coming in at a lower than expected 11 million tons. China has been experiencing a mess of weather problems, including droughts, but also frosts impacting sugar crops.
What this means for sugar prices is pretty clear. The supply side of the equation is crimped, with crops in weather ravaged countries like Brazil, Australia, and India are damaged if not destroyed. Demand, also, is not falling much.
Societe Generale’s Emmanuel Jayet (emphasis ours):
Although demand has been slower recently, we think this is likely temporary. Sugar is a staple food and a cheap source of energy in many countries; it has few substitutes and corn-based syrups are also impacted by tight corn markets. Therefore, even if the consumption growth rate were lower than it usually is – note that sugar consumption has not risen by more than 2.1% per year over the past 10 years – we do not think that global sugar consumption could decrease in nominal terms.
So, with both sides of the sugar trade in trouble, and China about to spend way more on imports, prices should go higher. Jayet sees them back at their late 2010 highs, or breaking higher, before the supply side of the equation gets fixed later this year.
Photo: Societe Generale