Sugar a sweet choice for commodity trade

What's Up: Traders go on a sugar rush and invest in the global sweetner.

The price of sugar has been on the increase for weeks, climbing nearly 50 per cent since early May. AFP
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Traders have developed a sweet tooth for sugar as the commodity continues to rise on the markets.

The price of sugar has been on the increase for weeks, climbing nearly 50 per cent since early May, and analysts predict the upward trend to continue.

Many experts believe the increase in sugar prices has been driven by speculators rather than fundamental agricultural factors or growing demand among consumers to put more sugar lumps in their tea. But crop harvests in Brazil are mooted to be smaller than first expected, which is likely to affect global supply because the country accounts for about a quarter of world production and a large percentage of global exports.

"The severe logistical difficulties in Brazil and Thailand are slowing sugar shipments in the main ports and support spot prices as a result," Schroders said in a recent note to its clients.

The industry group Unica lowered its harvest estimate to 533.5 million tonnes of cane on July 13, down from a previous projection of 568.5 million tonnes.

Meanwhile, the brokerage ICAP do Brasil CTVM says the country continues to overestimate the amount of sugar cane it will harvest, with the company forecasting the cane crop to be just 520 million tonnes. "Looking at the behaviour in the price, the fundamentals are bullish because they have to support the price movement we have seen recently," said Bruce Powers, the head of research and analysis at Trust Securities, based in Dubai.

The price has risen from 20.8 US cents per pound on May 6 to 30.7 cents per pound yesterday.

Mr Powers predicts the price could rise more than 7 per cent to 32.7 cents per pound before seeing a small correction downwards. This will only be short-lived, though, as issues affecting supply move down the chain.

"It is likely that we will have a pull back before it breaks through. The rally has been strong but it will eventually run out of momentum in the short term," Mr Powers said. "In the long term it's bullish."