It is too early to write off the rally in sugar futures, which fell for a third successive trading day on Tuesday, with China to trash beliefs that high prices have trashed demand for the sweetener.
Analysts at Sucden Financial, while noting talk that the physical sugar market had been "recently very quiet", also highlighted buyers' limited scope for holding off, given "low" inventories.
"It seems that many are waiting for sub-30 cents [a pound] prices," Sucden's Nick Penney said, adding that while New York's front, March contract may indeed touch these levels, such a decline "may be brief".
The contract stood at 30.66 cents a pound at 14:30 GMT on Tuesday, down 0.8% on the day, sparking speculation among some analysts, such as Ker Chung Yang at Phillip Futures, of an imminent correction.
Cane setbacks
China, in particular, looked to have little room to hold out, facing a second successive season of output well below demand of 14m tonnes, Societe Generale said.
"Given that the sugar cane area was recently hit with frost, the Chinese production outlook is now closer to 11m tonnes," SocGen analyst Emmanuel Jayet said.
With Beijing having already run down stocks to meet last year's shortfall, blamed on drought, "we think that Chinese imports will likely soon increase dramatically and reach 3m tonnes on an annual basis", Mr Jayet said.
"It may even be higher as stocks will have to be built up."
As a potential signal of Beijing's imminent intent, futures prices in China had now built a premium of $0.20 a pound over their New York peers – a level which last year triggered imports.
'Overall trend bullish'
With supplies from Brazil, the top exporter, waning in its close season for processing, and significant shipments from India looking increasing unlikely, a move by China back into import markets could send sugar back towards the 30-year high of 36.08 cents hit at the start of the month.
"The second quarter [of 2010] could be as volatile as the first as uncertainty on whether Indian exports will be large and whether China, and the rest of the world, will step up its demand for imports," Mr Jayet said.
"We believe, however, that the overall trend will be bullish," seeing raw sugar futures average 34.3 cents a pound in the April-to-June quarter.
Production rebound
However, prospects thereafter were dimmer, with Societe Generale forecasting that prices would decrease "more significantly" late in the year as better prospects for 2011-12 sugar production become apparent.
World output will rose by 10m tonnes to 174.8m tonnes, raising inventories for the first time in four seasons.
"This [production] increase is expected to come mainly from countries where this year's output has been impacted by detrimental weather conditions - namely Russia, the European Union, Thailand, Indonesia and China among others."
The improvement in supplies will depress New York futures to an average of 25 cents a pound in the last quarter of the year, and to an average of less than 20 cents a pound for 2012.
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