Sugar a new star as funds see sweet profits
warrants.bnpparibas.com
By David Brough
LONDON, Jan 5 (Reuters) - Fueled by rising demand and speculative buying, global raw sugar prices rose more than 60 percent last year, and analysts expect them to soar further as funds pile into the market.
"For a hedge fund, sugar is a fantastic opportunity," said James Proudlock, fund manager with London-based MPC Commodity Fund, noting that funds were specifically pinpointing sugar in their asset allocations.
Traders said on Thursday that raw sugar prices, which stood at 9.04 cents a pound at the end of 2004, could soon drive higher to 16 cents a lb. Benchmark New York March futures closed at 14.87 cents per lb on Wednesday, just below a lifetime peak of 14.90.
"I think we'll have 16 cents this year. The question is: what will happen to prices next?" said Sergey Gudoshnikov, senior economist of the International Sugar Organization (ISO).
Paris-based broker Jonathan Kingsman has said raw sugar futures could rise to between 14 and 16 cents a lb in 2006.
The London refined (white) sugar futures market has also hit successive highs, closing up six percent on Wednesday to a fresh nine-year peak of $360 per tonne. Front-month white sugar futures were down $4.50 or 1.25 percent to $355.50 on Thursday afternoon as speculators took profits.
The first position contract ended 2005 37 percent up from the end of 2004.
Increasing international demand, the potential for Chinese buying, falling EU exports after sweeping reforms to a decades-old subsidy regime, increased use of Brazilian cane for biofuel, and a global supply deficit, will support sugar prices this year, traders and analysts said.
Falling stocks in deficit countries in Africa and the Middle East will also drive prices higher, traders said.
Investment funds see sugar as a "star" commodity with potential for high returns outstripping other asset classes, traders said.
EU REFORMS TRIGGER CHANGE
EU subsidy and trade reforms will trigger a major restructuring of the refined sugar trade, creating winners and losers across the European industry as some players will survive and flourish, and others will fail, he said.
A smaller-than-expected increase in output in top producer Brazil in 2005/06, compared with the previous year, will also support prices, traders said.
Brazil's 2005/06 (May-April) cane crop was projected at a record 394.4 million tonnes, down from the 397.1 million tonnes estimated in August due to drought, the agriculture ministry's crop supply agency Conab said on Wednesday. nN04348966
Traders noted choppiness in sugar futures, marked by aggressive speculative buying and brisk selloffs to take profits, and said the increased volatility was here to stay as trading volumes increased.
"This volatility requires strong nerves, but you had better get used to it," one European broker said.
"The fund players we talk to are predicting huge inflows into all the commodity markets this year -- some of which will undoubtedly end up in sugar. Volatility can only increase from here." |
