A Look Back at 2012

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2012 was expected to see a reduction in price. But the sense of risk stayed for longer than expected.

2012 was always expected to see a reduction in risks and increase in supply. With the balance sheet returning to surplus prices were expected to reflect this, which they did. However, looking back the fall in price from 23.40c to 19.51c masks the sense of risk that stayed with the market for longer than expected. Though the return to surplus in the physical market has seen the structure of the futures market eventually return to contango the journey has not been a smooth one once again highlighting the risks around physical flows and the importance of Brazilian exports to the sugar market.

Approach to the March Expiry

  • The abrupt end of crushing in the 2011/12 CS Brazil crop meant the market remained tight into Q1 despite Northern Hemisphere production hitting its stride.
  • With Brazilian sugar limited, the March'12/May'12 spread strengthened to over 100pts premium in late February. Though the spread failed to maintain this level, it expired at a healthy 65 points, with 880k tonnes delivered. Brazil’s constituted only around a third of the total volume.

“The fall in prices in 2012 was less than had been expected given the second year of surplus in the global balance sheet. The reason for this is the increase in global trade, which points to stronger underlying demand than had been expected.”

Toby Cohen, Czarnikow director

2012/13 CS Brazil Crop

  • The market was expected to return to surplus with the start of the 2012/13 season in the CS Brazil. In anticipation of Brazilian supply, the May'12/July'12 spread traded to flat. However, a wet May/June meant that the harvest was notably slower to start and it was only the July contract that began trading at a discount. However, with delays in Brazil becoming apparent and strong physical demand emerging bidding up physical values the spread quickly reverted to a premium with the July'12/October'12 expiring at 80 points premium.
  • During Q3 the harvest began to show signs of its potential. Prolonged dry weather enabled record crushing rates over consecutive fortnights, eventually leading to 34m tonnes of sugar being produced from over 530m tonnes of cane. The sugar surplus was finally being felt, with cash values rapidly weakening and the market trading down towards 20c and the October'12 expiring at 85 points discount to the March'13.

Increasing Physical Flows Despite a Production Surplus

  • 2012 saw a record volume of physical sugar flows, of around 47.6m tonnes excluding preferential EU and US quotas.
  • The second half of 2012 saw CS Brazil export record volumes of raw sugar, with exports higher year-on-year for every month from August to December. Global raws exports of 8m tonnes helped total raws exports reach 30.5m, while also rebuilding global pipeline stock by over 1m tonnes.

“Strong import demand from China was very important to sugar in 2012. However, we are still looking for the signs of rising usage in the domestic market that we have been expecting.”

Peter de Klerk, Senior analyst

Increasing Demand Growth?

  • Given the second year of surplus in the global balance sheet, the record traded volumes in 2012 are very interesting as they point towards greater strength in the physical market than expected and potentially stronger underlying consumption.
  • Increases in base level consumption are extremely difficult to identify and while we had been expecting to see lower prices triggering a consumer reaction we have yet to identify clear signs of this happening and have recently scaled back our forecasts for consumption growth accordingly. However, clearly the strong volume of trade suggests that the potential is there and we will be monitoring this closely.


  • Growth in supply has been driven by efficiency as opposed to expansion. 2010/11 and 2011/12 saw production rise at around 7% each year, while 2012/13 is expected to achieve just a 1% growth.
  • The boom in greenfield expansion in Brazil is now over though new mills are coming on stream in Thailand and also parts of Africa.
  • Growth is also occurring in the refining sector, as evidenced by the increased supply of Indian refined sugar in 2012. A number of new refineries have come on stream in the Middle East and Asian regions.


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