SINGAPORE: US sugar futures will drop to around 20 cents a pound, a level last seen in May 2011, in the second quarter due to rising supply in key producers, but Chinese purchases could limit the decline, the Commonwealth Bank of Australia said on Thursday.
May sugar contract tumbled almost 3 percent to end at 22.34 cents on Wednesday, the lowest settlement for the spot contract in almost a year, due to worries the euro zone debt crisis could flare up again and the prospect of more exports from India.
" We forecast raw sugar prices, ICE first futures contract, to fall to 20.70 US cents/lb in Q2 2012, down 4 cents from the first quarter average of 24.70 US cents/lb," the CBA said in its sugar market review.
"An expected expansion in global sugar supplies in 2012/13, including high output in key exporting nations of Brazil, India, Thailand and Australia, is likely to keep pressure on global sugar prices over the coming 18 months."
Commonwealth Bank of Australia is Australia's largest lender by market value.
"Prices are expected to fall further and average 17.50 US cents/lb in Q3 2012 before consolidating between 17.5-18.00 U.S cents through to December 2013. This is in line with average nominal sugar prices of 17.8 US cents/lb since 2006."
"But limiting the price declines should be continued strategic sugar buying by China, reduced output in Europe and the Former Soviet Union in 2012/13, and continued uncertainty around Brazil's centre-south production prospects given the dry January and February."
China's sugar imports in 2011 surged 65 percent on the year to 2.92 million tonnes.
The CBA expects total Chinese sugar consumption to grow by 63 percent from 2010 to 2020, with imports likely to rise to 4-5 million tonnes by 2020.
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