Sugar remains sweet as supply concerns bite

Sugar’s continuing strength was the stand-out feature of yesterday’s trading in commodity markets, which barely paused for breath after sprinting to their highest levels of the year in the previous session.

Supply concerns continued to push the sugar market higher yesterday as drought in India and heavy rains in Brazil have affected output in the world’s two largest producing countries.

White sugar in London traded at its highest levels since July 1983 with Liffe October white sugar up 1.8 per cent to £511.8 a tonne after hitting $513 earlier in the session.

India, the world’s largest sugar consumer, is expected to increase imports to offset the impact of poor monsoon rains on its sugarcane crop. Traders expect India’s sugar production to make only a limited recovery in the new season, which starts in October, to about 17m tonnes. Sugar output has dropped to an estimated 15.5m tonnes in the year ending September from 26.3m tonnes in 2007-08.

In New York, ICE October raw sugar gained 1.2 per cent at 19.38 cents a pound, nearing the February 2006 high of 19.73 a pound. In 2006, Brazil was able to ramp up sugar output at the expense of ethanol production, helping drag raw sugar prices back towards the 10 cents a pound level by September. However, traders note that wet weather has affected yields and output in this year’s harvest and point out that rising oil prices have increased the attraction of producing ethanol for some Brazilian mills.

Barclays Capital said US supply tightness was another support, with stocks-to-usage standing at 3.4 per cent, well below the US Department of Agriculture’s preferred 15 per cent. The USDA has yet to decide how much sugar can be imported under the tariff rate quota (TRQ) sugar import programme, but pressure to allow a rise in imports from consumers appears to be growing. Imperial Sugar, one of the largest US producers, said the country would need to import up to 816,000 tonnes by late spring to meet the domestic shortfall.

In energy markets, crude oil displayed resilience and built on Monday’s gains. ICE September Brent hit a fresh 2009 high at $74.20 before easing back to trade 60 cents higher at $74.15 a barrel. Nymex September West Texas Intermediate oil rose 27 cents to $71.85 a barrel, recovering from a drop of $1.42 to a session low of $70.16.

Gold pushed beyond the $960 a troy ounce level, rising 0.8 per cent to $963.50, helped by dollar weakness.

Gold’s strength inspired gains for silver , up 2.9 per cent to $14.62 a troy ounce. Silver prices have risen 10 per cent over the past five sessions.

Silver exchange traded products continued to see strong inflows of 205 tonnes in July with total holdings reaching a record 11,051 tonnes, in contrast to gold ETFs which last month saw net outflows of about 40.6 tonnes.

Among the base metals, copper, aluminium and nickel hit fresh peaks for 2009, extending Monday’s strong gains which followed a marked improvement in July’s purchasing managers’ surveys.

Copper rose 0.3 per cent to $6,055 a tonne after hitting $6,070, while aluminium rose 1 per cent to $1,993 a tonne and nickel reached $19,400 a tonne, an increase of 2.4 per cent.