Global sugar prices traditionally rise in September as the northern summer begins to wane, but recovery this year is threatened by a mountainous world sugar surplus, including rapidly rising stocks in India.
Major industry players at a conference last week seemed to reach consensus that a global surplus was headed toward 14 million tonnes next year, as well as receiving confirmation that India will be exporting at the upper range of expectations.
"The market really is overwhelmed with the general surplus and India's surplus in particular," said Tom McNeill, Australian director of Lasagne-based brokerage and analyst Kinsman SA.
McNeill, speaking by telephone from Brisbane, was commenting on the grim mood in world sugar markets after last week's Bali conference where India confirmed that it was aiming to export increasingly large tonnage's of sugar. World raw sugar prices have fallen by almost a fifth so far this year to about 9.46 cents per lb., pressured by bumper crops in Brazil and India.
The impact is already being felt by sugar producers, with Australia's CSR Ltd on Tuesday revising down its earnings forecast for this year on the back of lower sugar prices. India's exports could top 2 million tonnes this year and possibly rise to 4 million tonnes next year, depending on price.
Its fast-growing surplus is expected to keep prices depressed for years to come, industry leaders said. "Sugar looks bleak. I hope this will not last for long, although this is wishful thinking," said Peter Baron, executive director of the International Sugar Organisation.
A global sugar surplus is forecast to reach 14 million tonnes next year, with predictions rising almost week-by-week. ED&F Man sees prices staying low for the next 12 to 18 months. As New York sugar prices fell in reaction to reports of India's growing exports, it seemed almost as though industry leaders were trying to outbid each other with depressing forecasts, McNeill said on Tuesday.
The only price optimist at last week's Bali conference was India's chief sugar industry executive SL Jain, the man behind the sudden and unexpected emergence of India as a big exporter.
"Sugar prices could recover after a month," Jain said, pointing to the use of sugar products as feedstock for ethanol. Other delegates, who privately noted that it was very much in Jan's interest to see prices rise, did not share this view.
Jain, the architect of India's swing to large-scale sugar exports after the government lifted a ban on such sales in January, said the only reason he was presently not exporting was that prices were below his floor level of around 10 cents.
But he is also determined that India stays a large exporter. At 4 million tonnes, Indian exports would rival the annual exports by Asia's two established sugar exporters, Australia and Thailand. India's rise as a powerful sugar exporter is already producing acrimony. One well-known industry leader, not an exporter, last week privately described India's sugar production as "crazy". Tension is also simmering over India's accusation that Australia and Thailand are getting unfair government assistance.
Jain said India might be prepared to take the fight to the World Trade Organisation but Australian analysts believe that the countries won't be successful in the case.
Meanwhile, a glut is also emerging in global sugar refining. A cap by the WTO of 1.4 million tonnes on European Union exports of white sugar, which has removed about 5 million tonnes of white sugar exports from world markets, has triggered a wave of new investment in refining capacity around the world.
New refineries concentrated in the Mediterranean, the Persian Gulf, India and Indonesia will boost global refining capacity by more than 11 million tonnes to 35 million tonnes by 2010, according to Garrett Forbear, a senior economist with research analyst LMC International.
Forbear points out that these 11 million tonnes greatly exceeds the 5 million tonnes removed from European supply. In Indonesia alone, three or four refineries under construction will double capacity to 3 million tonnes by 2009. Some refineries are sure to collapse, analysts say.
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