Sugar prices recovered from their weakest close in three
years after India, the second-ranked producer, deferred a decision on export
subsidies, while Brazil's real recovered too.
Raw sugar futures for March, which closed the last session
at 14.74 cent a pound, the weakest finish for a spot contract since June 2010,
rebounded to 14.93 cents a pound in early deals in New York, a gain of 1.3%.
London white sugar for March, which on Monday fell below
$400 a tonne for the first time since 2009 for a spot contract, was 1.1% higher
at $407.40 a tonne.
The gains followed the failure by India's Cabinet Committee
on Economic Affairs to decide on a subsidy on sugar exports which has been seen
by investors as an extra weight to price, in potentially lifting India exports
this year to some 1.5m-1.7m tonnes of raw sugar and 500,000-700,000 tonnes of
The committee's deferral was down to a "paucity of time", KV
Thomas, the Indian food minister, told reporters after the meeting.
"The sugar proposal could not be taken up for discussion."
The postponement also comes amid talk of a dispute over the
level of subsidy.
The agriculture ministry, said to favour support of 3,500 rupees
($55.86) per tonne of raw sugar, and the food ministry, which is pressing for a
lower level of 2,000 rupees ($31.92) per tonne, reducing the threat of
depleting domestic supplies.
With domestic production costs reckoned locally at about
$420 a tonne (19.0 cents per pound) for raw sugar, above international market
rates, the level of subsidy is crucial to the level exports likely to be
However, failure could ultimately derail the subsidy plan altogether,
with the approach of Indian elections potentially leaving a decision open to
"It is now getting late. If no decision is taken soon, then
by law there can be no decision until after the forthcoming elections," London
broker Marex Spectron noted earlier this week.
"Any subsidy will become illegal if it is made too close to
the up-coming election."
Furthermore, operationally, the later in the crushing season
in which a decision is made, "the harder it will be to implement it", given
that Indian mills typically produce white sugar rather than raw sugar.
As an extra support for sugar prices, the Brazilian real set
course for its first gains against the dollar in nine sessions, and fears over
emerging market currencies wane.
The real gained 0.5% to R$2.42 to $1 as of 12:30 UK time.
Some analysts view the weakening of the real as key to the
latest slide in sugar prices to three-year lows, in improving the dollar value
of an asset of which Brazil is the top producer and exporter.
"Over the past fortnight, ICE sugar prices have fallen 4-5%
in dollar terms but are largely flat in real terms," Luke Mathews at
Commonwealth Bank of Australia said.
'Increase in demand needed'
However, Societe Generale highlighted the importance of supply
and demand fundamentals in depressing sugar futures, saying that its own
research indicated that these factors, rather than emerging market jitters,
explained the great majority of price moves.
"Sugar prices remain pressured by a larger-than-expected
global surplus, a strong start to the Thai harvest… and tepid demand," said
SocGen analyst Christopher Narayanan.
The role of low prices in depressing sugar output, including
switching Brazilian mills to make ethanol from cane rather than sweeteners, "may
become increasingly important" if it continues into the next Brazilian harvest
period, which ramps up in April.
However, for now "an increase in sugar demand is needed to help
sustain any rally in sugar", Mr Narayanan said.
"With the global surplus estimates growing… the world seems
to be amply supplied, and projected to remain so for the foreseeable future."