February 2, 2016
Sugaronline | http://goo.gl/UbRujC
Both India and China hold the key to price volatility for 2016 and 2017 with production seen as the main uncertainty, reports Sugaronline.
El Niño impacts will determine whether India will continue to be a net exporter while for China the weather phenomenon will determine just how big an importer it will be.
The impact of El Niño throughout India on not only sugar production but on food production overall is evident from the water shortage throughout the country, Siddharth Amin, Director of Dr Amin Controllers Pvt Ltd told the Dubai Sugar Conference.
Currently, 54% of the country is in a state of "high water stress" as the capacity of the ground water wells has fallen by more than 50% due to the lack of rains in sugar areas during the last monsoon.
India's 2015/16 crop is expected to come in at roughly 25.5 million metric tonnes, with consumption seen at 25 million tonnes and opening stocks of 6 million tonnes, yet despite the high level of stocks Amin does not see India as a net exporter during 2016. He says that production could shrink further in 2017 if El Niño continues through July, potentially cutting production to 24 million tonnes.
Apart from potential weather challenges from El Niño, the Chinese supply and demand picture remains hazy due to lack of accurate information, Toby Cohen, Vice-President Market Research at ASR Group told the conference. Cohen estimates stocks to currently be around 10 million tonnes while the USDA based its most recent analysis on 7 million tonnes.
Stocks will likely be drawn down due to a 6 million tonne gap in production with just 9 million tonnes produced this past season in light of estimated demand near to 15 million tonnes.
Continued urban migration from rural areas has farmers abandoning crop land while other crops, such as eucalyptus, are converting crop hectares permanently, all of which will have an impact on crop production. Shrinking production is meeting the smuggling of Indian and other sugars via Myanmar, which could have reached 2.5 million tonnes as of September 2015, according to Auke Vlas, Groupe SD's Commercial Director, further destabilising trade flows.
Speaking on the sidelines of the Kingsman Platts Sugar Conference, TianLun Investment Research's sugar researcher Jean Zhang said she expects sugar consumption to fall this year due to high fructose corn syrup's price discount of CNY1,800 (US$273.5) per tonne against sugar, further complicating the demand picture. Last year the differential was only CNY600 and it saw Coca Cola shift to 95% HFCS from 75% HFCS, she said, so demand could fall to 14.9 million tonnes from 15.1 million tonnes.