Asia offers relief to world sugar surplus

The global sugar market will see a sizeable surplus in the next crop year but rising Asian demand, led by China, and lower-than-expected output in top exporter Brazil may offer opportunity for producers to expand sales, industry officials said.

Demand from China and Indonesia, which together account for about 3% of world sugar production, could help ease the surplus estimated at around 4mn tonnes in the crop year to September 2012, the International Sugar Organisation (ISO) said.
ISO’s estimates are lower than forecasts by ABN Amro/VM Group, which pegs an excess of 7.83mn tonnes in the year starting October this year, and Czarnikow, which sees a 10.3mn-tonne surplus.

India alone is expected to see a larger surplus of 4mn tonnes in 2011-12 from its expected sugar production of 26.0mn tonnes, versus 24.2mn tonnes for the 2010-11 season, said Abinash Verma, director general of the Indian Sugar Mills Association (ISMA).

“There will be a surplus and there will most likely not be a massive restocking,” ISO executive director Peter Baron said in an interview ahead of a sugar conference in Cebu.

“China is an interesting case. We expect that China, for the first time, will import more sugar this year than their WTO quota of 1.9mn tonnes. We wouldn’t be surprised if China would import more than they did in 2010-11.”

China has ramped up imports of sugar in recent months to boost its reserves and cool soaring domestic prices, industry sources say. Total imports in the first half have risen 27.4% from a year ago to 520,472 tonnes.

Analysts also underscored the support coming from lower Brazilian sugar crop.
“You’ve got the obvious bullish element in the market being the continued downgrade that we’ve seen in the past couple of months to Brazilian production estimates,” said Luke Mathews, commodities strategist at CBA in Sydney.

“Considering Brazil’s standing in the global sugar market, that’s an overwhelmingly bullish story.”

Brazil’s main centre-south sugar output for 2011-12 is estimated around 30.5mn tonnes, commodity trader Energy Brazil told Reuters, below the 31.57mn tonnes projected by cane industry association Unica.

Last week, Unica cut its centre-south sugar output estimate for the second month in a row from its July estimate of 32.38mn tonnes, as frost, flowering and falling yields continued to drag down milling results.

The ISO said that supply and demand fundamentals will set the tone for global prices and New York raw sugar futures are expected to trade in a range of 23¢ to 28¢ a pound over the next eight to 12 months—below a recent peak around 31¢.

“There was a time when the price of sugar was delinked with the fundamentals. But now we have the impression that the market is more (focused on) the basic fundamentals,” said ISO’S Baron.

The organisation also forecast China to import about 3mn tonnes in the 2011-12 season, in line with analysts’ estimates, as the world’s second-largest economy needs to bolster its sugar reserves to strategic levels.

Any excess supply from Thailand and India could also be absorbed by Indonesia, which could import about 2.6mn tonnes in 2011-12 as domestic output was unable to meet the country’s growing demand.

Thailand, the world’s second-largest exporter after Brazil, is forecast to produce around 10mn tonnes of sugar in 2011-12, topping its 2010-11 output of 9.62mn tonnes, the ISO said.

ISMA’s Verma said the decline in Brazil’s production will offer an export opportunity to Thailand and India, the world’s main consumer and the second-largest producer. India was hit by a severe drought in 2009 that hit sugar output and forced it to import.

“The size of (Indian) exports for next year depends on the timing that the government allows exports and how good prices would be in the next six months or so,” said Verma, adding that since India is not a regular exporter of the sweetener, it is unable to export much to China, which prefers Brazilian sugar.

“India’s sugar is sold to Pakistan, Sri Lanka, Bangladesh and Middle East countries. We have also sold some sugar to the EU,” Verma said.

“Not much to China. I understand China has a preference for Brazilian sugar. The problem in India is that it’s not a regular exporter.”

India has decided to allow another 500,000 tonnes of unrestricted sugar exports, a government minister said on Friday, which would come on top of 1mn tonnes of shipments allowed so far this year.

But Verma said it was not yet certain if India could still be a sugar exporter for the 2012-13 season.

source: gulf-times