Thursday, December 5, 2013

Stronger world sugar demand 'here to stay'


Czarnikow, which three months ago shook up the sugar market by pegging demand well above market estimates, hardened its stance, saying consumption growth may remain at higher rates.

Growth in global sugar demand, which average more than 3% in the five years to 2008, had slowed to 1% three years later – a major factor in dragging New York futures down from a 30-year high of 36.08 cents a pound reached in February 2011.

The average growth rate in sugar consumption in 2009-11 was just 1.3% a year – not much faster than world population growth which is a big driver of baseline demand.

However, this slowdown may prove a temporary hiccup, caused by the world economic slowdown and the elevated sugar prices – both of which have reversed.

'Trigger of civil disturbances'

"The global financial crisis was detrimental to consumption growth rates as economic growth slowed, but in sugar the effect was even more acute as the market entered a three-year period of production deficits and high prices," the London-based group said.

"This impacted on supply chains. In North Africa a shortage in the availability of essential commodities, including sugar, became a trigger leading to civil disturbances and the events of the Arab Spring."

However, with prices lower, and population growth alone adding nearly 2m tonnes a year to sugar consumption, "we remain confidence that the long-term outlook for demand remains positive", Czarnikow said.

"We will see a rebound in growth rates at current lower prices."

Price implications

This acceleration would appear in fact to imply support to sugar values, given their low level compared with production costs, although Czarnikow stopped short of making a price forecast.

Toby Cohen, Czarnikow director said: "With consumption growth proving robust and the world market moving back towards equilibrium the market needs to sustain production and cover total production costs as well as pay a return to shareholders.

"This remains a challenge."

Worst hit regions

The extent of the 2009-11 slowdown in consumption growth had been evident in particular in Asia, the Middle East and North Africa, the merchant added.

In Asia, the annual growth fell from a rate of 4.7%, in the decade up to 2008, to 1.5%.

In the Middle East, growth fell from around 3.6% to less than 1%.

"Had consumption continued to grow at the rates experienced from 2000-08 in these two regions alone, consumption in 2013 would today be 11m tonnes higher than it is today."

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