Sugar prices could surge on supply shock- Kingsman

* Brazilian mills seen in financial dire straits
* Indian importers sidelined due to high prices

LONDON,- Sugar prices, already near three-year peaks, could go much higher if there is a supply shock in Brazil, Jonathan Kingsman, managing director of consultancy Kingsman SA, said on Tuesday.

"To see prices go much higher, we would need to see a bit of a problem in Brazil," Kingsman, a high-profile figure in the global sugar industry, told Reuters Television, referring to the world's biggest producer and exporter of the sweetener.
The financial difficulties of Brazilian sugar mills due to the credit crunch could tighten the supply outlook, he added.

"Sugar has got a story and it's one of the best stories among the commodities group," Lausanne-based Kingsman said. "We are in a bull market."
He added, "If things go wrong, prices will explode."

India's voracious appetite for sugar after a poor domestic crop, has contributed to expectations of a global deficit and powered raw sugar prices over 30 percent higher this year.

Kingsman said that he expected India, which has swung to net importer from exporter and is the world's biggest consumer of the sweetener, to add 5-6 million tonnes of sugar output next season in response to the high prices. He predicted Indian sugar output at around 15 million tonnes this season.

Benchmark ICE July raw sugar futures rose 1.7 percent to 15.88 cents per lb at 1217 GMT, after slipping from a near three-year peak of 16.03 cents per lb earlier in the day.

Toby Cohen, head of analysis at London-based sugar and ethanol group Czarnikow, said the lofty sugar prices were deterring physical buyers.

"The market has pulled away from the levels that end-destination buyers would like to pay for sugar," he said on Reuters Television.

Indian importers were resisting buying while the world market was so high.
Cohen predicted a 5 million tonne global sugar deficit next season, compared with Kingsman's forecast for a 2.5 million tonne deficit after a 12 million tonne shortfall this crop year.

Kingsman said he had seen investor money piling into sugar, driving prices up to their present highs.

"The buying has been largely speculative over the last few days, and it's run ahead of real physical buying, so we wouldn't be surprised to see the market consolidate around here (near term)," he said.

A rosier macroeconomic picture, notably a sense that the global recession may not be as bad as earlier feared, had also boosted the appeal of investment in commodities such as sugar, he added.

source: reuters