The long term slump in sugar prices within the tightly-controlled EU market is beginning to reverse, as low imports and a small harvest bring about a tightening in supply, Commerzbank said.
“EU sugar prices have stopped their longstanding nosedive and started to reverse,” Commerzbank said, citing “slumping EU sugar production in the current 2015-16 season and lower-than-expected imports”.
According to analyst FO Licht, white sugar prices in the EU hit E550 a tonne in March.
Data from the EU Commission had the average price for white sugar in January, the most recent reported date, at E429 euros a tonne.
Quota restrictions, low sugar beet yields, as low global sugar prices led to a drop in output last season.
EU sugar beet acreage was down by 14% in 2015-16, which, combined with a drop in yields, pushed production down by 24%, to 14.9m tonnes, according to European Commission figures.
Record sugar output in 2014-15 caused supplies to be carried over into the 2015-16 quota season, so producers were forced to lower output in 2015-16.
“An additional incentive to limit production came from the strong decline in prices amid ample internal market supply which could not be dampened by potential short supply on the global market either,” Commerzbank said.
“At the same time, imports into the EU fail to meet expectations,” Commerzbank said.
“Amid the current strong rise in global market prices, some observers see the risk that duty conditions will also render imports into the EU increasingly less attractive for countries such as Brazil,” the bank said.
“Lower EU production in 2015-16 […] in connection with the prospective deficit on the global market and lower imports into the EU initially triggered a stabilisation since early 2015 and recently caused the significant increase in EU sugar prices,” Commerzbank said.
End of quota looms
Still, production is set to increase in the longer term, Commerzbank said.
Sugar production is expected to recover by 18% in 2016-17.
And EU sugar industry is headed for a major shakeup, with a decades-old production quota system to be pulled in September 2017.
The European Commission expects sugar production to rise by 5% immediately after the end of the quota system, allowing the EU to return to its role as a net sugar exporter.
“Most forecasts assume an export potential of around 3m tonnes,” Commerzbank said.