Sugar market ‘in Petrobras’ hands’ as industry seeks rebound after price slump

With sugar prices under pressure, industry participants turned their attention during New York Sugar Week to potential factors that could support a rebound, as prices hover near their lowest levels in almost five years.

The annual gathering of analysts, producers and traders comes as global raw sugar prices have faced heavy pressure over the past year amid ample global supply and slow demand growth.

Among the main factors that could support a recovery are gasoline prices in Brazil and the potential impact of El Niño on sugar production.

Large sugarcane crops in Brazil, the world’s top producer, weighed on the market last year and again this year. The sector now expects a larger share of cane to be directed to fuel production rather than sugar.

Still, the outlook for that production split remains mixed and can shift quickly depending on the relative prices of sugar and ethanol.

Estimates for the share of cane allocated to sugar ranged from 45% to 48.5%, below last year’s record of 50.4%, according to Mike McDougall, an analyst at McDougall Global View. If projections at the lower end of that range are confirmed, the sugar mix would fall to its lowest level in at least four years.

Prices for both sugar and ethanol have remained low, with domestic ethanol prices recently less profitable than sugar.

The most-active raw sugar contract has recovered about 10% over the past month after nearing its 2020 low, but continues to trade at depressed levels.

New York futures fell as much as 1.8% on Friday to 14.72 cents per pound, while white sugar declined 1.4%.

“Sometimes sugar is more attractive than ethanol, and mills in Brazil decide every week where to direct their production mix,” João Otávio Figueiredo, head of research at Datagro, told Bloomberg News on Monday.

He added that Petrobras also plays a role in the market. “The sugar price is under pressure because we are now in Petrobras’ hands.”

Petrobras kept domestic gasoline prices stable even as international prices surged because of the conflict in Iran, contributing to quarterly results that came in below expectations.

The Brazilian government said this week it will subsidize gasoline, a measure that could reduce demand for hydrated ethanol in the country.

Petrobras recently raised diesel prices and said it will also increase gasoline prices, but has not yet disclosed details.

Another bullish factor being watched by the market is the potential impact of El Niño on production in India, the world’s second-largest producer after Brazil. The weather phenomenon, expected to intensify late this year, usually brings drier conditions to the region, affecting sugarcane yields.

At the more pessimistic end of estimates, Datagro projects Indian production will fall 4.6% from the previous year to 27 million tonnes, contributing to a larger global deficit of 3.17 million tonnes.

StoneX Group, which projects a much smaller deficit of 550,000 tonnes, expects Indian production to remain virtually stable year on year. The estimate assumes “moderate intensity and moderate impact on the Indian crop,” Rodrigo Martini, senior sugar and ethanol consultant, said in a presentation on Tuesday.

Any further crop losses in India are a concern for the market because they increase the chances that the country, which had already been restricting exports to protect domestic supply, will remain absent from global sugar trade.

On Thursday, India banned exports for the rest of the current season, through September.

The measure had been widely expected by the market given the decline in this year’s crop and expectations of El Niño, but it also broadened discussions about possible additional restrictions in 2026/27, said Claudiu Covrig, principal analyst at Covrig Analytics.

He maintained his projection of a global surplus in 2026/27, but said the scenario would change if El Niño “hits India hard.”

Ravi Gupta, a member of the executive board of Shree Renuka Sugars in New Delhi, said during the Datagro event that he does not expect production to “fall below this year’s levels,” given the increase in sugarcane acreage.

Still, he stressed that the crop “depends entirely on how the weather behaves with El Niño, especially the distribution of rainfall.”

Source: Bloomberg Línea

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