Sugar might be the next commodity for commodity traders and investors to focus on. Indeed, Dangote Sugar Refinery, Plc., the sugar manufacturing company of Nigerian billionaire, Aliko Dangote, is set to produce 1.5 million metric tons of refined sugar annually within the next ten years.
This is part of the company's goal to become an integrated sugar business, serving local and export markets from integrated sugarcane plantations and factories across Nigeria. This is good news for commodity traders who have their eyes on African commodity markets as it will boost sugar demand on the continent.
Dangote Sugar Refinery is already the largest sugar refinery in sub-Saharan Africa, with an installed capacity of 1.44 million metric tons per annum. The company is currently working on expanding its sugarcane plantations and building new refineries in order to achieve its production target of 1.5 million metric tons per annum.
The company's backward integration projects are expected to have a significant impact on the Nigerian sugar industry. By producing more of its own sugarcane, Dangote Sugar Refinery will be able to reduce its reliance on imported raw sugar and improve its profitability. The company's expanded production capacity will also help to reduce Nigeria's dependence on imported sugar and make the country more self-sufficient in sugar production.
It must be stated that sugar prices have been relatively low due to oversupply. Dangote’s goal of increasing sugar production is expected to increase demand for sugar, driven by population growth and rising incomes in developing countries. Thus, this will lead to higher sugar prices in the near future.
Manufacturing sugar increases the price of sugarcane because it adds value to the crop. The manufacturing process removes impurities from the sugarcane juice and concentrates it into sugar crystals. This process requires specialized equipment and expertise, which adds to the cost of production. In addition, sugar manufacturers often take on additional costs, such as transportation costs, storage costs, and marketing costs. These costs are also passed on to consumers in the form of higher sugar prices.
Since Dangote’s sugar refinery is set to increase production by 1.5 million tons within the next ten years, we can then predict that the price of sugarcane is set to have an upward trend in Africa because sugar manufacturers will compete with Dangote’s sugar company to secure the sugarcane they need to meet demand.
Nigeria imports about 98% of its sugar production, and the country has relied almost entirely on sugar imports for at least thirty years, despite the government’s effort to boost local production. Hence, Dangote Sugar Refinery’s goal of increasing refined sugar production will certainly help reducing Nigeria’s reliance on imported sugar on the one hand, and on the other hand, it will increase demand for sugarcane, which will lead to an increase in sugarcane prices, and this is a massive trading opportunity for commodity traders.