White Sugar Drops to Five-Week Low as Recession Concerns Mount

By Marianne Stigset

Dec. 4 (Bloomberg) -- White sugar fell to a five-week low in London as investors cut their holdings in commodities on concern that a global recession will sap demand for raw materials.

The European Central Bank delivered the biggest interest rate cut in its 10-year history today and warned the euro region’s economy will shrink next year for the first time since 2003. The UBS Bloomberg CMCI Index of 26 raw materials is heading for its sixth consecutive monthly decline.

“Soft commodity futures have suffered a ferocious beating over the past few weeks as investors bailed out over fears a global recession would batter demand for goods like sugar and coffee,” researcher F.O. Licht said in a report yesterday.

White sugar for March delivery fell as much as $6.50, or 2.1 percent, to $308 a metric ton, the lowest since Oct. 27, and stood at $309.60 by 3:25 p.m. on London’s Liffe exchange. Raw sugar for March delivery dropped as much as 2.5 percent to 10.88 cents a pound on ICE Futures U.S. in New York.

“A retracement back up over the short term can be expected, but resistance from the 11.20s will be good and the current trend should send March back under 11 cents,” Peter Hoyt, a sugar trader at Sucden (U.K.) Ltd., wrote in a note today.

Czarnikow Group Ltd. yesterday raised its estimate for the shortfall in sugar supply in the 2008-09 season by 76 percent as tightening credit and weaker prices spur producers to restrain output. Supply will fall 5.8 million tons short of demand, compared with an August forecast of 3.3 million tons.

“Sugar prices have proved more resilient than other commodities during the global economic downturn, helped by relatively strong fundamentals, and analysts believe expectations of tighter supplies in 2008-09 and 2009-10 can give the market a further boost once oil prices begin to normalize back to higher ground,” F.O. Licht said.

Coffee Plunges

Crude oil has plunged 68 percent since reaching a record in July and fell for a fifth day today to the lowest in almost four years after a report showed U.S. fuel demand extended declines.

Among other agricultural commodities, robusta coffee for January delivery dropped $210, or 11 percent, to $1,759 a ton, the biggest decline since Oct. 8. Cocoa futures for December delivery rose 89 pounds, or 5.4 percent, to 1,749 pounds.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net