Sugar Prices May Stabilize as Demand Outpaces Supply

Sugar will probably stabilize, after plunging by almost half in two months, as import demand outpaces global supply, Thailand’s Office of the Cane and Sugar Board said.

“Prices are likely to stay around 17 cents to 18 cents a pound as demand remains strong amid a global deficit,” Prasert Tapaneeyangkul, the board’s secretary-general, said in an interview today at a meeting in Thailand, the world’s second- largest exporter.

Raw sugar has tumbled 42 percent since reaching a three- decade high of 30.4 cents a pound on Feb. 1 as hedge- and index- fund managers cut holdings and on signs that output from Brazil and India, the top producers, will improve. Fundamentals suggest higher prices, according to Emmanuel Jayet, head of agricultural commodity research at Societe Generale SA.

“I can’t find a rationale for the price slump as drought may damage crops in China and India, while demand hasn’t subsided,” Prasert said.

The global deficit is likely to continue next year as India may have a shortfall of 4 million to 5 million tons, Prasert said. The deficit is estimated to be about 7 million to 8 million tons next year, from 9 million tons this year, he said.

Supply is insufficient to meet demand and “prices have bottomed at about 16 cents,” said Vibul Panitvong, executive chairman of the Thai Sugar Millers Corp., which groups the country’s 46 millers.

May-delivery futures were little changed at 17.69 cents a pound after jumping 6.6 percent yesterday on ICE Futures U.S., the steepest gain since June 9.

Thai Output

The cane harvest from Thailand will probably be 4 percent lower than forecast as a “serious drought” damages crops, Prasert said.

Cane output may total as much as 71 million tons in the crop year starting November 2010, compared with an estimate of 73 million tons, he said. Output this crop year may be about 69 million tons, the equivalent to sugar production of 6.8 million tons, said Prasert.

“We’re very seriously concerned the drought will lower production as cane growers mostly rely on rain,” he said. India may also face a similar problem as they also rely on a non- irrigation system in cane plantations, he said.

“Weather is unfavorable,” he said. “It’s hard to believe that India’s output will be strong.”

Sugar production in India, the world’s largest consumer, may exceed 17 million tons in the year ending Sept. 30, in line with government estimates, Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories Ltd., said March 23.

Price May Drop

India’s output was 15 million metric tons in the period from Oct. 1 to March 15, compared with 13.2 million tons a year earlier, as late rains improved cane yields in the biggest growing regions, the producers’ group said.

Rising production in India, the second-biggest producer, may reduce the need for overseas purchases, pressuring global prices.

Still, prices may drop about 21 percent from current levels to 14 cents a pound, before rallying after April to about 20 cents, said Nutthapol Asadathorn, executive director of Thai Roong Ruang Sugar Group, Thailand’s second-largest miller.

“Fundamentals remain unchanged,” Nutthapol said in an interview on the Thai island of Koh Samui today. “The price slump is mainly driven by forced selling but it is unlikely to fall below 14 cents a pound, which is the production cost in Brazil,” he said.

source: businessweek