ing sugar outlook 2017 - a changing environment
TRANSCRIPT
Sugar: What’s in Store For The Remainder Of The 2016/17 Season?
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Sugar Rallies And Outperforms Broader Commodity Markets
3
Source: Bloomberg, ING estimates
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12
14
16
18
20
22
24
26ICE Sugar No.11 (USc/lb)
40
60
80
100
120
140
160
180Sugar vs. Broader Commodity Markets
Sugar Bloomberg Commodity Index Bloomberg Ags Commodity Index
Speculators Move to Record Net Long Position
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0
50
100
150
200
250
300
350Sugar No.11 Managed Money Gross Long (000 lots)
0
50
100
150
200
250
300Sugar No.11 Managed Money Gross Short (000 lots)
-150
-100
-50
0
50
100
150
200
250
300
350Sugar No.11 Managed Money Net Position (000 lots)
5
Global Sugar Market In Its Second Consecutive Deficit
Source: FO Licht, Bloomberg
5
10
15
20
25
30
35
40
-15
-10
-5
0
5
10
15Sugar Stock Change (m mtrv) vs. No.11
Stock Change No.11 /lb
Despite A Record CS Brazilian Crop This Season
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300
350
400
450
500
550
600
650Cane (000 tonnes)
10
15
20
25
30
35
40Sugar (000 tonnes)
30.00%
35.00%
40.00%
45.00%
50.00%
55.00%
60.00%
65.00%Sugar Mix
Sugar Ethanol
Returns for Brazilian Millers Have Been Great
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Source: Bloomberg Source: Bloomberg
0
10
20
30
40
50
60
70
80
0
5
10
15
20
25
30
35
40No.11 Sugar in BRL terms
No.11 (Usc/lb) No.11 (BRLc/lb)
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50USD/BRL
2017/18 CS Brazil Cane Availability To Fall, But Sugar Output Will Be Strong Once Again
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Source: UNICA, ING estimates
300
350
400
450
500
550
600
650
08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18
Cane (000 tonnes)
10
15
20
25
30
35
40
08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18
Sugar (000 tonnes)
Thailand Seeing Another Poor Crop
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Source OCSB OCSB, ING estimates
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
40
50
60
70
80
90
100
110Thai Cane and Sugar Output
Cane (m tonnes) Sugar (000 tonnes)
60
65
70
75
80
85Thai Ag Yields (tch)
A Hiccup In Their Ambitions To Increase Output Significantly
10
• Assuming a 150 day season, current capacity for the Thai industry is just over 140m tonnes of sugarcane.
• However there are a number of permits that have been issued for news mills to be built.
• If they were all to materialise this would take the industry’s capacity to around 180m tonnes.
• Mills need to continue convincing farmers to switch to growing sugarcane.
Source: OCSB
0
20
40
60
80
100
120
140
160
180
200Thai Projected Cane Crush (m tonnes)
CAGR: 7%
Chinese Crop Improves YoY, But Still Relatively Poor
11
Source: FO Licht, ING estimates Source: Various reports
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000Chinese Sugar Production (000 tonnes)
350
370
390
410
430
450
470
490
510Guangxi Cane Price (CNY/tonnes)
How Is Chinese Consumption Holding Up?
12
Source: FO Licht, ING estimates Source: GSMN
12,000
12,500
13,000
13,500
14,000
14,500
15,000
15,500
16,000
16,500
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
Chinese Sugar Consumption (000 tonnes)
CAGR: 3%
1% growth
Chinese White Sugar vs. HFCS 55 (CNY/tonne)
SugarHFCS 55Difference
What Does This Mean For Chinese Import Demand? As Well As Smuggling?
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Source: FO Licht
-8,000
-7,000
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
Chinese Domestic Surplus/Deficit (000 tonnes)
200
300
400
500
600
700
800
900
1,000
1,100Chinese Domestic Price vs. No.5 (US$/t)
No.5 China Domestic
However Is There More Chinese Destocking To Come?
14
Source: Reports, ING estimates Source: Bloomberg
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500 Chinese Government Destocking (000 tonnes)
Potential for a significant
amount of further destocking
2,000
3,000
4,000
5,000
6,000
7,000
8,000Chinese Domestic Sugar Prie (CNY/tonne)
Destocking level
Indian Production To Fall Below 20m tonnes?
15
Source: ISMA Source: ISMA, various reports, ING estimates
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000Indian Sugar Production (000 tonnes)
0
1
2
3
4
5
6
7
8
9
MH UP KN TN Others
Indian Sugar Prouduction by State (m tonnes)
15/16 16/17
Increasing The Need For India To Import?
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Source: Bloomberg Source: ISMA, ING estimates
20,000
25,000
30,000
35,000
40,000
45,000Kolhapur Sugar Price (INR/t)
70% rally since mid-2015
0
5
10
15
20
25
30
35
Opening Stock Production Imports Consumption Closing Stock
Indian Domestic Sugar Balance (m tonnes)
Meanwhile EU Stocks Are Tight…. For Now
17
Source: EU Commission Source: EU Commission
0
1,000
2,000
3,000
4,000
5,000EU Ending Stocks (000 tonnes)
Quota Ouot Of Quota
10,000
12,000
14,000
16,000
18,000
20,000
1,200
1,300
1,400
1,500
1,600EU Production
Area (000 ha) Production (000 tonnes)
2017/18 AND BEYOND
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Pre Current Quota
• Production quota in place totalling 17.4m tonnes. Divided between A and B quota.
• Minimum beet price of EUR46.72 for A quota and EUR32.42 for B quota.
• Industry receives export refunds on sugar.
• Prohibitively high import duties. Limited preferential import programs in place.
• Isoglucose quota set at 500k tonnes.
Current Environment
• Production quotas currently set at 13/5m tonnes.
• Minimum beet price of EUR26.29/tonne for quota production.
• Out of quota exports limited to 1.4m tonnes under WTO rules.
• Number of preferential import programs, which see sugar enter Europe duty free or at a reduced duty. High import duties remain.
• Isoglucose has an annual production quota of 720k tonnes.
Post Quota
• Quotas are scrapped, so producers can produce as much as they wish.
• No minimum beet price.
• Scrapping of production quotas and minimum beet price sees export limit removed.
• Import programs and duties remain the same. Although the refining industry is pushing for change.
• Isoglucose quota removed, could lead to some substitution with sugar, although thought to be limited.
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All Change In The EU
How Much Can The EU Expand Sugar Production?
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• Initially we are likely to see little investment in expanding capacity.
• The first step will be to expand campaign length- Germany and France could see this increase from 100-110 days to 130 days.
• However weather does become more of an issue.
• Additional investment will be needed in storage.
Source: EU Commission, Platts, ING estimates
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
EU Sugar Production (000 tonnes)
Who Are The Losers From the Reform Within The EU?
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Source: ING estimates Source: istock
Least Efficient Producers EU Sugar Refiners
The EU Set To Become A Net Exporter
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Source: EU Commission, ING estimates Source: Eurostat, Bloomberg
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Current Post 2017
EU Sugar Balance
Production Imports Consumption Isoglucose Consumption Exports
0
20
40
60
80
100
120
140
160
180
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000 EU Exports vs. Whites Premium
EU exports (000 tonnes) Whites Premium (US$/tonne)
The Growth In Middle East Refining Capacity
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Source: Various, ING estimates
0
5,000
10,000
15,000
20,000
25,000Middle East & Africa Refining Capacity
(000 tonnes)Regional Refining Capacity
Where Have EU Sugars Gone In The Past? And Where In The Future?
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Source: Eurostat Source: ING estimates
0
100
200
300
400
500
600
700
800
900EU Sugar Export Destinations (000
tonnes)
2000 2015
Future Homes For EU Sugar
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How Does The Global Market Look Over 2017/18?
Source: FO Licht, Bloomberg
5
10
15
20
25
30
35
40
-15
-10
-5
0
5
10
15
Sugar Stock Change (m mtrv) vs. No.11
Stock Change No.11 /lb
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ING Price Forecasts
Source: Bloomberg, ING estimates
ING Price Forecasts
Commodities 1Q17 2Q17 3Q17 4Q17 FY17 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19
Sugar No.11 (Usc/lb) 24 25 24 20 23 22 23 20 20 21 20 19 20 21 20
London Cocoa (GBP/t) 2,000 2,040 2,000 1,960 2,000 1,960 1,920 1,920 1,980 1,950 2,050 2,100 2,150 2,100 2,100
CBOT Corn (Usc/bu) 400 450 425 425 425 450 460 425 425 440 450 475 450 425 450
CBOT Wheat (Usc/bu) 450 500 530 550 510 550 550 600 625 580 600 575 600 625 600
CBOT Soybeans (Usc/bu) 1,100 1,200 1,200 1,100 1,150 1,150 1,250 1,200 1,200 1,200 1,225 1,300 1,250 1,225 1,250
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