Richard Lucas, renewable energy analyst at Ambrian Partners, says that as oil prices shot up, speculators got very excited about sugar, which drove the price up beyond what it should have gone to, but the long-term view of sugar is very positive.
He adds that the current sugar price is a correction back to more reasonable prices and the long-term outlook for sugar is still very strong.
Excerpts from CNBC - TV18's exclusive interview with Richard Lucas:
How much lower do you see international sugar prices going in the near-term, given that they have already gone to sub-400 levels?
I think, in the near-term international sugar prices have probably got a little bit further to go. If you look at the graph on the long-term trend, in US terms, they spiked up to 19 cents a pound in February and they have fallen all the way back to below 14 cents a pound now, which brings them back in line with the trend that has been developing for the last two to three years.
So I don't think they have got much to go down further. In terms of demand, that's still expected to be slightly outstripping the supply this year.
Supply is expected to grow by about 3% for the year to 149.7 million tonnes and the demand is forecasted for the moment to grow slightly less than that, but nevertheless it will be 149.9 million tonnes, so there is still a surface of demand.
The prices rose and speculators got involved earlier in the year. As oil prices shot up, speculators got very excited about sugar, which drove the price up beyond what it should have got to. But I think the long-term
Would do you say, this is a temporary correction, or these are more reasonable prices, which one will see for the rest of the year?
I think this is a correction back to more reasonable prices. Things got way ahead of themselves in the early part of the year in the same way that speculators have over hyped the prices of some of hard commodities in the last couple of years, including sugar. But the long-term outlook for sugar is still very strong. Ethanol production in Brazil is still raising demand.
There is of course a lurking fear that because of high prices earlier in the year, there might be too much supply on its way from large markets like Brazil and Russia and could that actually skew or alter the supply-demand situation for sugar in the foreseeable future?
I think certainly, when the prices got up to 20 cents a pound earlier in the year; Brazil for one was definitely releasing sugar into the market, rather than turning it into ethanol. But I think at these prices, that sort of sugar will go back for being used for ethanol production in Brazil, which continues to have a very strong internal demand for ethanol and is also now exporting ethanol for fuel.
So at this type of price, I don't see there being a huge release of sugar and the production as I said at the moment is rising. The forecast for the year is that the demand, for the third year running, will outstrip supply very slightly.
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