India, the biggest sugar user, may produce less than it consumes as early as October 2012, possibly spurring the first net imports in three years, said ITC Ltd. (ITC) That would push up global prices, said Standard Chartered Plc.

“India is likely to become a structural importer” like China, said Somnath Chatterjee, ITC’s head of procurement, who said the company was the third-biggest domestic sugar buyer after Coca-Cola Co. (KO) and PepsiCo Inc. Rising demand for cookies and candy will outstrip production curbed by low domestic prices, he said in an interview yesterday.

Buying by India would add to demand from China, the second- biggest user, and Indonesia, draining global supplies. While harvests may exceed demand by 4 million metric tons in the year starting October this year, prices may stay high because of importer demand to replenish stockpiles, the International Sugar Organization said. Futures gained 48 percent in the past year.

“I think the market would probably move into a sustained bull cycle” if India becomes a net importer, said Abah Ofon, an agricultural analyst at Standard Chartered Plc, in a phone interview from Singapore.

Sugar for October delivery fell 1.3 percent to 28.75 cents per pound on ICE Futures U.S. in New York today, declining for the second day. Futures gained 3.4 percent this week on concern output may decline in Brazil, the top producer and exporter.
Food Industry

The food industry’s share of sugar demand in India has surged to 70 percent from 50 percent five years ago, Chatterjee said. Demand may increase to 30 million tons by 2020 from 23 million tons in 2011-2012, he said.

Prices in parts of India have dropped below the cost of production because of the high rates the government requires millers to pay farmers for their cane, said Chatterjee of ITC, a producer of cookies and candies and also the country’s biggest cigarette maker.

The losses may mean millers are unable to pay farmers, causing a decline in planting of the cane that’s crushed to make sugar, he said in a phone interview from Bengaluru. Domestic prices in India, the biggest producer after Brazil, are the second-lowest in the world, Abinash Verma, director general of the Indian Sugar Mills Association, said Aug. 14.

A bull-run in the sugar market will only end once an exporter comes up with an additional 8 million tons to boost global trade, said Ofon from Standard Chartered. That’s how much it would take to fill the gap created by the loss of India’s exports and its potential import requirements, he said.
Shipments, Prices

India shipped a record 5.83 million tons in 2007-2008, according to U.S. Department of Agriculture data, before it became a net importer. The country resumed net exports this year.

The nation may boost output to 26 million tons in 2011-2012 from 24.2 million tons a year earlier, leading to a surplus of 4 million tons and creating the potential for “large quantities” to be exported, Verma said Aug. 15. Exports would bolster local prices that have fallen 8 percent this year, said the Cane Committees’ Association, a growers’ group.

“The government should allow exports of the entire surplus as our production is exceeding demand and we have comfortable stockpiles,” said Awadhes Mishra, a former president of the Association in the state of Uttar Pradesh. “There is no need to dump sugar in the country unnecessarily as production is also going rise next year.”

Supplies may total 29.1 million tons in the year ending Sept. 30 compared with demand of 21.1 million tons, according to the food ministry. The government has allowed exports of 2.6 million tons since Oct. 1, it said.

-- Editors: Ovais Subhani, James Poole

source: bloomberg

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