The rebound in sugar, which has driven New York prices back above 16 cents a pound for the first time in seven weeks, is poised to stumble as Russia's imports of the sweetener dry up.

Raw sugar prices will average 14.5 cents in the July-to-September quarter, a decline of some 10% on their closing price on Monday, and representing the weakest quarter in more than a year, Societe Generale said.

While demand has picked up notably since prices touched a bottom of 13 cents a pound early last month, after halving since February, this pick-up looks set to fade as a window on Russian import concessions closes.

'Running out of steam'

"Demand recovered first in Russia, traditionally one of the largest importers of sugar," the French bank said.

"But Russian import duties have increased in June. Russian imports are therefore likely to falter soon."

The revival in orders could last until the end of June "before running out of steam".

"We think… therefore that the price rebound period will come to an end right at the start of the third quarter."

Modest surplus 

Indeed, July will revive a bear run which will take prices to 12.0 cents a pound, near historic levels for the sweetener.

However, the decline will be slowed by the global market's measured return to a production surplus - of 2.5m tonnes in 2010-11 compared with deficits totalling some 20m tonnes over the previous two years.

"The tight global stock situation is unlikely to be fully alleviated by the… rebound in 2010-11 production," Societe Generale said.

"Against this background, we expect sugar prices to remain above 14 cents a pound until the end of the year."

Ethanol vs sugar 

And the market still had the potential for surprises, such as a weather threat in Brazil, the biggest producer, or diversion of cane for making ethanol rather than sugar, in the face of weak prices for the sweetener.

"Ethanol is now more profitable for Brazilian sugar mills, which may lead them to dedicate more sugar cane to ethanol than currently anticipated," Societe Generale said.

"Weather and ethanol bring a degree of uncertainty to the forecast of a sharp rebound in sugar production in Brazil.

"Either or both of these factors may put upward pressure on sugar prices if they move unfavourably in the weeks to come."