Date: March 2016
This year has seen a reduction in available beet molasses, due to a low sugar price, resulting in a smaller planting acreage. Strong demand from the fermentation industry in Europe and from MSG production in Asia has given support to the beet molasses price and made it unviable for feed producers on the continent, due to it trading at a large premium to other raw materials used in feed rations.
Feed demand for beet & cane molasses is down on the continent due to the price vs other raw materials, resulting in a reduction of inclusion levels of molasses. In previous years a fall of demand for beet molasses has resulted in an increase in cane demand – however due to the relatively high price of cane molasses this has not been the case in Q4 2015/Q1 2016.
Almost the total harvest of Pakistan will 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
A combination of the above has meant only 30,000 mt of molasses has been exported against a total of 2million mt produced and 70,000mt exported from the previous harvest.
The new harvest in India is in full swing and cargoes have been available for export since January. Due to the situations in other origin countries, it already looks like India will form the backbone of the cane molasses trade for the remainder of 2016. Total molasses output is forecasted to be less than last year, however not by a considerable amount and it is currently difficult to predict how much of this will be reflected in the total tonnage made available for export.
However, the demand for Indian molasses coming from both Europe and South East Asia (historically net exporting region) could increase FOB prices considerably as we move into H2.
South East Asia
Thailand’s sugar cane crop will also be smaller than last year’s and will result in a lower amount of molasses produced locally. This, coupled with a rise in ethanol output due to government legislation requiring a certain percentage of fuel to be ethanol, would usually spell doom for the molasses exports. However, due to the alternative energy plan resulting in more ethanol being produced from Tapioca, Thailand looks set to export 500,000mt of molasses this harvest – the same figure as last year.
The Philippines has become a net importer in recent years, due to a rampant ethanol programme brought in by the government. Last year the region imported 300k MT of molasses, this year the import figure will be closer to 500K MT.
For the first time, 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.
The current Central American crop is now almost finished, the remaining cargoes will now be purchased at a premium and will most likely be shipped into South-East Asia’s fermentation industry.
H2 2016 looks to be a tough period for the molasses traders as increasing demand for molasses from Asia’s fermentation industry will result in a reduction of exportable quantities and therefore an upwards movement in price.
2017 EU Sugar Quota
An interesting development moving forward is the EU-wide removal of:
- sugar export limits
- guaranteed minimum sugar price
Removal of sugar export limit – this will mean in countries such as Germany and France, where sugar producers have the capacity to increase production, economies of scale will allow sugar to be sold competitively on the world market. This will therefore result in a dramatic increase of beet molasses available at local level in Germany and France and could result in Cane molasses trading at a large premium to beet molasses inside the EU.