Ref: MPML/PMS/147/2008
Date : August 18, 2008Global Sugar Supplies To Tighten
"THE WORLD is sitting on a huge stockpile of sugar, but global supply outlook will tighten into next year due to rain-induced crop problems in Brazil and falling output in India, auguring for higher prices. "
"India, the world's No 2 sugar grower and top consumer, may shift from being a net exporter to a net importer in a few years as output falls. "
"A strong appetite by investment funds for soft commodity futures has also contributed to price hikes. "Production will fall next year," said Sergey Gudoshnikov, senior economist with ISO."
THE WORLD is sitting on a huge stockpile of sugar, but global supply outlook will tighten into next year due to rain-induced crop problems in Brazil and falling output in India, auguring for higher prices. The International Sugar Organisation (ISO) estimates that global stocks of the sweetener will stand at 70 mt by end-September, 8-9 mt more than in the year-ago period. ISO's preliminary projections foresee stocks falling just 2-3 mt by September '09. However, despite high stocks, sugar prices may rise in the medium term as supply from key growers Brazil and India tightens, and demand rises steadily. The quality of cane in Brazil is poorer this year due to heavy rains, and mills are diverting cane to make ethanol biofuel. India, the world's No 2 sugar grower and top consumer, may shift from being a net exporter to a net importer in a few years as output falls.
Benchmark raw sugar futures have risen 28% this year. According to a Reuters poll, the sugar market will move towards a deficit this year, forcing prices higher. The poll projected that ICE front month futures will surge 38% y-o-y to 14.95 cents a lb by the end of '08. This rise is a reflection of expectations of increased demand for cane-based ethanol, reduced availability of sugar, tightening sugar supplies and increasing demand for the sweetener, notably from emerging economies. A strong appetite by investment funds for soft commodity futures has also contributed to price hikes. "Production will fall next year," said Sergey Gudoshnikov, senior economist with ISO. "A key question will be India - whether surplus stocks will be available for the world market or not." After a record output of 28.4 mt in India last year, output is set to fall in '08-09. Atul Pandey, senior manager of Bunge India, saw India's sugar output falling. "Sugar production mat not be less than 22-22.5 mt in '08-09," he said. The trend is likely to continue in the year to September '10 as poor rains have hit cane planting. Mr Pandey forecast Indian closing stocks at 11 mt at end-September '08, leaving a small window for exports of 2 mt in '08-09. But if the Indian government bans sugar exports, this sugar would not be available in the world market. Brazilian Sugar Cane Industry Association said the pace of crushing in July helped mills to regain lost ground. Sugar output in centre-south Brazil through July 31 totalled 10.7 mt. In coming months, mills will divert cane to ethanol. The proportion of Brazilian cane used to make ethanol biofuel will affect sugar supply.
(Source: - Economic Times)