According to analysis from various research institutions, domestic white sugar futures prices broke below their previous lows in late July, challenging the 5,100 yuan per ton support level, while international sugar prices remain range-bound between 14-15 US cents per pound.
The "strong external, weak internal" pattern persists. Raw sugar prices face upward pressure from the Brazilian crushing peak and the implementation of the E32 policy. India's export ban, coupled with renewed import expectations, creates a potential driver for tighter future supply.
The contest between "weak reality" and "strong expectations" continues. The key question is whether the current domestic price decline is a deepening of fundamental "weak reality" or the final blow from capital selling pressure. Below is a summary of the latest viewpoints from major research institutions.
Q1: How is raw sugar pricing defined against the backdrop of the Brazilian crushing peak and the E32 policy?
Orient Futures states that the ICE raw sugar October contract remains trading below 15 US cents. Dry weather in Brazil's main producing regions is favorable for sugarcane crushing, intensifying the seasonal production supply pressure for sugar and ethanol, which limits price upside. ICE sugar prices are expected to maintain a range-bound pattern, with the key variable being the sugar-to-ethanol price ratio.
Dadi Futures notes that since late June, Brazilian ethanol prices have continued to fall, with the sugar-equivalent price dropping approximately 0.8 US cents per pound from its earlier high. To offset the weak ethanol market, Brazil approved a temporary increase in the mandatory blend ratio from 30% to 32% on July 14, effective for 180 days from August 1. Institutions estimate this will create an additional demand of about 1 billion liters of anhydrous ethanol.
However, the US imposed a 25% tariff on Brazilian ethanol from July 22, partially offsetting the blending benefit by limiting export channels. On the valuation side, the current sugar-equivalent price for ethanol is in the 12-12.5 US cents per pound range, with a sugar-ethanol price spread of about 2.5 US cents per pound. The ethanol-to-gasoline price ratio has fallen to 0.617, indicating that ethanol's competitiveness against both gasoline and sugar remains weak. Ethanol inventory pressure is significantly greater than that of sugar, which limits the potential for an increase in the sugarcane-to-ethanol ratio.
CITIC Futures reports that due to weather impacts, sugarcane crushing in Brazil's center-south region slowed in May-June, and the sugar-to-ethanol ratio was lower year-on-year, leading to a year-on-year decline in sugar production. However, cumulative ethanol production still grew by 32% year-on-year. There is an expectation of a recovery in the sugar-to-ethanol ratio in June-July, and with improved weather in July, there is upward pressure on overseas sugar prices, which are expected to maintain a range-bound pattern. The short-term price reference range is 14.0-15.5 US cents per pound.
CITIC Construction & Investment Futures observes that rising oil prices have failed to drive sugar prices higher. Clear weather in Brazil's main producing regions is conducive to sugarcane harvesting, and the sucrose content per ton is high, increasing the pressure of supply fulfillment. The E32 policy is expected to create an additional demand for about 10 billion liters of ethanol, potentially increasing the allocation of sugarcane towards ethanol production, thereby reducing the cane used for sugar, which is a marginal positive for raw sugar.
Furthermore, UNICA anticipates that the blend ratio could gradually advance to 35% in the future. This, combined with recent energy price increases and rising uncertainty about Brazil's fuel supply, strengthens the competitiveness of biofuels, limiting the downside for raw sugar. The E32 policy's boost is limited: the policy was already anticipated, and some of its positive effects may have been priced in. The impact of increasing the ethanol blend is likely already absorbed by the market. Even with rising crude oil, heating oil, and gasoline, the impact on ethanol prices is not significant. Therefore, the E32 policy is more of a medium-term support for the sugarcane allocation logic rather than a short-term reversal catalyst.
China Merchants Futures analyzes the blending policy shift from E30 to E32, noting that the current Brazilian ethanol market is clearly oversupplied. Estimated annual total ethanol sales are about 35 billion liters, while based on a 55% ethanol production ratio, total production could reach 42.8 billion liters, resulting in a surplus of about 7.8 billion liters. Ethanol consumption growth is a slow variable. In a surplus cycle, incremental consumption can only provide a floor, not reverse the inventory build-up. However, if the market shifts to a deficit year, consumption growth would push ethanol prices higher, encouraging mills to divert more sugarcane to ethanol production, thereby reducing sugar supply.
A substantial decline in sugar production ultimately depends on a contraction in total sugarcane output, such as reduced planting area or mill bankruptcies, which are longer-term structural adjustments. From this perspective, increasing the blend ratio has a relatively short-term effect on alleviating the increase in sugar supply.
Q2: With the renewed expectation that India will shift from "banning exports to needing imports," how will the global trade flow pattern evolve?
China Merchants Futures points out that India's current sugar stocks are adequate, with the carryover stock for the 2025/26 season estimated at 5.2 million tons. However, domestic sugar prices have not come under pressure from this, rising by about 6%-7% in June. If domestic sugar prices sustainably remain above the export parity price, it will directly weaken the export competitiveness of mills, suppress export intentions, and indirectly provide a positive for international sugar prices. If the price rally continues, it could be seen as a signal of tightening supply. In that case, the government is expected to prioritize measures such as increasing sales quotas, releasing stocks, or strengthening anti-hoarding regulations, while the possibility of imports is also gradually rising.
Zijin Tianfeng Futures cites industry experts in India suggesting that carryover stocks at the end of the crushing season in September could be as low as 1-1.5 million tons, while domestic monthly sugar consumption is 2.2-2.5 million tons. Therefore, there is a high probability that domestic sugar prices will be pushed up again in October due to supply shortages. The market expects India could become a net importer of raw sugar. If monsoon rainfall remains persistently weak and leads to a lower-than-expected new crop, combined with the current very low inventory buffer, there is indeed a possible path for India to shift from "banning exports" to "needing imports."
CITIC Construction & Investment Futures notes that while monsoon rainfall in India has improved, it remains below the average, which has phase-wise weakened the expectation of a future production shortfall. Regarding the policy path, the Indian government faces a dilemma. Maintaining the export ban without opening up imports would cause domestic sugar prices to continue rising, exacerbating inflation and social discontent. Conversely, opening up imports would send a signal of "Indian shortage" to the global market, potentially pushing up international sugar prices and thereby increasing its own import costs.
Historically, India has only approved small amounts of low-tariff imports under extreme conditions, such as two consecutive years of sharp production declines and depleted inventories. While current conditions have not reached historical extremes, the fact that stocks have fallen below a safe level is indisputable. Additionally, the US Climate Prediction Center previously estimated an 81% probability of a very strong El Niño event from October to December. If subsequent weather disruptions intensify, it could re-strengthen supply concerns in Asian production regions, further fueling India's import expectations.
Q3: With the "high production and high inventory" overhang and the loss of the key support level, has Zhengzhou sugar (Zhengshang) now bottomed out?
Orient Futures states that the current summer cold beverage consumption season, followed by the pre-Mid-Autumn Festival and National Day holiday stocking period, should lead to a seasonally faster destocking of domestic sugar. However, industrial inventories at sugar mills remain high. Combined with concerns about the potential issuance of future import licenses, the pressure of inventory sales leaves mills with little willingness to support prices. Furthermore, the overseas market in the third quarter is also under the shadow of international trade flow surplus pressure. Zhengshang is expected to be weak and range-bound in the short term, with attention on mill destocking progress, spot demand, and capital flow dynamics.
From a position structure perspective, the open interest in the 09 contract, at about 650,000 lots, has fallen from recent highs but remains at a high absolute level. The subsequent process of reducing positions may itself bring phase-wise volatility. If short positions continue to be actively reduced without sufficient follow-through from long positions, the market could show a pattern of "declining with reducing positions." If summer destocking exceeds expectations, there is a possibility of a rebound on position reduction.
Dadi Futures observes that the domestic market has been continuously weakening since the typhoon theme ended. Recent rumors of import licenses have added further negative factors. Combined with the downward shift in import cost valuations, the domestic market's downward pace has been smoother than the overseas market. Uncertainty also surrounds import policy, with the possibility of further licenses being issued. Ministry of Commerce data shows that an estimated 134,000 tons of additional Brazilian raw sugar are expected to arrive in July. Against the backdrop of a supply-demand surplus, market sentiment is clearly under pressure.
Zijin Tianfeng Futures notes that increased imports of sugar and syrup, coupled with a slight slowdown in the destocking pace of domestic inventories, which remain at high levels relative to past years, are all factors suppressing current prices. Spot prices remain weak and continue to fall during the peak summer season, with downstream buyers only purchasing for essential needs, creating a classic "buy on the uptrend, not on the downtrend" atmosphere. However, due to the sharp decline in the futures market, the rate of spot price decline has narrowed, and the basis has gradually strengthened from neutral levels, signaling that prices are approaching a bottom.
The market currently maintains an expectation of increased domestic sugar production for the 2026/27 season, but attention should be paid to variables arising from this year's abnormal weather.
CITIC Futures believes that domestically, against the backdrop of ample supply and a slight recovery in demand that remains relatively weak, coupled with the expected arrival of imported sugar and substitutes and the continued issuance of additional import licenses, the domestic market will face pressure. It is expected to trade in a low range. The short-term price reference range has been revised down to 5,100-5,350 yuan per ton.
Common Ground Among Institutional Views
① Improved weather in Brazil in July and accelerated crushing, combined with the fall of the sugar-equivalent price for ethanol to 12-12.5 US cents per pound and the widening of the sugar-ethanol price spread to 2.5 US cents per pound, have increased expectations for a recovery in the sugar-to-ethanol ratio. The surplus pressure from international trade flows continues to weigh on the raw sugar market in the short term.
② The E32 blending policy provides a medium-term marginal positive for raw sugar, but the market broadly believes it was already anticipated and its short-term boost is limited. Its effect is more of a medium-term support for the sugarcane allocation logic.
③ The El Niño event has been confirmed by NOAA, with an 81% probability of a very strong event from October to December. European beet crops face a risk of reduced production due to heatwaves, and cumulative monsoon rainfall in India is 23% below average. The expectation of tighter future supply constitutes a potential medium- to long-term driver for higher sugar prices.
Divergence Among Institutional Views
① There is a divergence on the bottom valuation for raw sugar. Dadi Futures believes the sugar-equivalent price for ethanol at 12-12.5 US cents has lowered the floor for raw sugar. Orient Futures believes "strong expectations" limit the downside. CITIC Construction & Investment Futures believes the E32 policy and energy prices provide support but are not a reversal catalyst.
② Opinions differ on the probability of India "needing to import." Zijin Tianfeng Futures believes India's carryover stocks are only 1-1.5 million tons, making it a potential net importer. China Merchants Futures notes ISMA confirms stocks of 5.2 million tons but the possibility of imports is increasing. CITIC Construction & Investment Futures points out that India plans to allow zero-duty imports of 1 million tons of white sugar.
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