Date: January 2017
Western Europe – Western Europe has had a very good harvest this year (upscaling production due to reduction in EU sugar quotas – see previous report), however there has not been as much molasses produced as earlier forecast. In particular, a dry September in Germany and Poland increase sugar yields, but had the opposite effect on molasses yields. It is important to note that a larger quantity of beet sugar and beet molasses were produced in comparison to last year, however the reduction in expected molasses yield at a late stage in the harvest has caused a panic from the beet molasses users and forced the spot price up by almost $20.
Eastern Europe – similarly lower yields in exporting regions.
Recently feed demand for beet & cane molasses has been down on the continent due to the price vs other raw materials, resulting in a reduction of inclusion levels of molasses.
Fermentation demand has plateaued over recent months with the % of cane used by the industry replaced with beet where it’s been possible. However, with the beet price increasing more and more users may start looking toward the cane market.
Almost the total harvest of Pakistan will most likely be sold into the ethanol industry. Despite the falling oil price, ethanol still maintains its price and required tonnage due to artificial demand in the form of a government initiative, requiring cars to run on fuel that has been blended with ethanol.
Another barrier for Pakistani molasses to reach the world market on a large scale is the 15% export tax that is applied to the commodity
Pakistan has only exported 20k-30k this harvest.
The exporting regions of India’s west coast have seen a fall in molasses production this year due to a reduced planted sugar cane acreage of 25-30% in 16/17. India will most likely be the origin to help plug the Asian deficit in 2017 and we may see the first year that no cargoes from India are taken into the European market.
Thailand’s crop looks set to be similar to last year, with the majority of molasses produced being taken up by the state funded ethanol programs. More rains and the resulting higher yields should result in plenty of high quality molasses but it remains to be seen how much will be given for export.
Indonesian molasses mainly exported to the Philippines for their ethanol program or for the steel demand in the Korean port of Busan. However the crop size certainly has an effect on the overall cane price as a smaller harvest, such as 16/17, means that Korea and Philippines will have to look to other origins to cover their demand.
Asia will again be short of molasses moving through the first half of 2017. The Philippines will be requiring significant tonnage from the export market for their state sponsored ethanol program and this will most likely be filled by India, Australia and Indonesia. The only saving grace is that demand from New Zealand has reduced dramatically, meaning the region will become less dependent on Central America for supply.
Asian market background
Moving forward the South-East Asia looks set to require as much molasses from the world market as it will export. Despite the increase in tapioca and corn starch as fermentation stock the region may even become a net importer in years ahead.
Due to the growing middle class, the increase in alcohol consumption and the high level of ethanol production due to government edicts throughout the South and South-East of Asia, the market dynamics have altered slightly. Whereas even 2/3 years ago, excess supply from Asia lead to large scale exporting into Europe; South-East Asia is now requiring cargoes from India and Central America to plug the supply gap.
A low ethanol demand and a strong crop season is always promising news for the molasses market. In recent years, Central America has become the linchpin in favorable FOB prices. Anything less than a large harvest and strong yields can send prices rocketing as now both the EU and Asia scramble for tonnage from the region. The good news is this year’s crop and falling ethanol demand should slow down any price rises from the bullish signals coming from Asia. This however is heavily dependent on demand from US, if this was to increase it may well send prices moving dramatically upwards.
Central America – Europe: Price increase
Asia – Europe: Price Increase
Bunkers: Price Increase
Last market report I commented – “Historically a large beet molasses crop in Europe has resulted in a reduction in cane molasses demand from the Europe and a downward movement in price as the Asian origins found it difficult to shift fast enough. However, with Asia now in deficit and needing to import large quantities the reduction in cane demand from Europe merely results in the market staying flat.
With India having such a weak exportable molasses quantity, Asian demand will need to be satisfied with Central American cargoes which looks set to negate any downward price movements expected from a large CA harvest.”
And the change since then has been that the beet molasses yield has not been as high as forecasted, resulting in the price moving upward. It is difficult to predict where the market will move after this is there are still some factors yet to play out:
- Panic buying of beet by European fermentation industry slows down and beet market corrects itself lower. This will soften expected spike in cane demand and keep prices relatively flat.
- The opposite of the above could happen and give cane prices a boost at origin
- Large demand from the USA could reduce the exportable quantities from Central America for the European market, sending the price up.