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IKAR in Mass Media

EXPERTS FORECAST END OF CHEAP SUGAR IN RUSSIA

19 января 2006 года

The growth in world sugar prices on the back of stronger demand in Brazil and the United States will soon put an end to cheap sugar in Russia, market analysts told Interfax.

"Sugar prices in the country are breaking all the records, this has never been seen before, and a serious correction is not expected in the next month or two," said Yevgeny Ivanov, chief analyst at the Agrarian Market Institute (IKAR).

Sugar prices in Moscow had risen to $640 per tonne by January 17, from $502 on December 9, while in Krasnodar prices have jumped to $597 from $483, according to IKAR.

Ivanov attributed the jump in prices, despite the country's large sugar reserves, to expectations that there will not be any cheap sugar until September. "World prices are rising, refining of sugar beets is being completed, and Belarussian sugar will go through one customs warehouse starting in February," he said. All these factors have combined to push up prices. "The position of traders is understandable – why sell cheap, if there is a possibility of getting more," he said.

IKAR estimates white sugar reserves stood at 2.12 million tonnes on January 1, up from 1.76 million tonnes a year earlier.

Prices have also gone up because there were no major traders on the market between December 30 and January 11 due to the extended New Year holidays, and then a cold snap reduced business activity, Ivanov said. "Many are simply not working, while the remaining players are taking advantage of the situation to raise prices," he said.

Ivanov predicted that prices would fall back slightly in the near-term, but then continue to climb in a month or two, "especially since the ceiling, which is the imputed cost of raw sugar, of $630-$650 per tonne has not been reached yet."

"In any case, 2.5 million-3 million tonnes of raw sugar will have to be imported by September, and at today's world prices, there won't be any raw sugar cheaper than $630 per tonne," he said.

The Russian Sugar Producers Union also sees a direct correlation between world and domestic prices.

Prices have begun to stabilize after a sharp increase in a number of regions, thanks in part to the usual drop in sugar demand in January-February and the appearance on the market of sugar made from raw sugar bought prior to the jump in prices, a representative of the union said.

"But future prices will depend on exchange trading, which is strongly tied to growing demand from Brazil, which is increasing production of ethanol due to rising fuel prices, as well as from the United States, which suffered from hurricanes," the union official said, adding that analysts do not rule out a sugar shortage on the world market.

"Raw sugar has recently transformed from a food into an energy product," said Vladimir Sosnitsky, public relations director for the Razgulyai agribusiness group.

Domestic prices will become more dependent on world prices after the country uses up sugar made from sugar beets, he said.

Levon Momdzhian, deputy general director for foreign economic activities at the Razgulyai sugar company, said 2006 prices on the domestic market were likely to peak between February 15 and 25, after which imported raw sugar would begin flowing into the country, with the volume growing with the approach of May-June.

If world prices spike above 16 cents per pound, this will cause a panic on the world market, as it will mean that the road is open to 20 cents per pound ($440 per tonne) and beyond, "with all the negative consequences this entails," Momdzhian said.

“Since more than 50% of Russia’s sugar consumption depend on imports, domestic prices will follow trends with world prices,” said Igor Khudokormov, chairman of the board of directors at the Prodimex group.

Khudokormov said prices on imported raw sugar have grown by more than 50% over the last five years, while domestic prices have risen only 15%-20% and have yet to reach the level of the prime costs of imports, which is $630-$640 per tonne. Prices will continue to grow over the next two months before reaching the level of raw sugar and stabilizing at roughly $15 per tonne, he said.

The average price for raw sugar in New York will be 14.74 cents per pound in 2006, compared to 10.03 cents in 2005, according to the average forecast of analysts surveyed by Bloomberg. But analysts do not rule out that prices could top 18 cents per pound, which would be the highest price since 1981.

Source: Interfax  |  #sugar   |  Comments: 0   Views: 77

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