Global sugar prices will hover around 11 to 14 cents per pound in the year to September 2008 despite weak fundamentals as funds support prices, a top official at the International Sugar Organisation said on Wednesday.
Sugar prices collapsed from a 20-year high of 19 cents a lb in early 2006 to about 9 cents in mid-2007, mainly because of higher production in India, the world's biggest sugar producer after Brazil.
"The fundamentals are bearish, but the investment funds are active and they consider sugar undervalued," ISO Executive Director Peter Baron told Reuters in an interview on the sidelines of the Asia International Sugar Conference in Mumbai.
Buoyed by hedge fund buying, prices hit a 19-month high of 15 cents a lb in early March but dropped on March 20 to an 11-week low of around 11 cents as funds pulled out.
Prices have recovered now to around 12 cents after small investment funds started to buy. "There is a justification for funds to go for sugar as they believe the commodity is undervalued. Funds are keeping the market at reasonable levels," Baron said, adding they would continue investing in the commodity for the foreseeable future.
He said funds have also started investing in production facilities in Brazil and they have no plans to exit in the near term. "Had funds not been investing in sugar, prices would have been much, much lower due to oversupply in world markets," Baron said.
The ISO in February revised down its forecast for a global sugar surplus in 2007/08 to 9.3 million tonnes from a previous prediction of 11.1 million tonnes made in November.
World sugar production is expected to be 168.4 million tonnes this year, while consumption is estimated at 159.1 million tonnes, he said. "But we are headed for a balanced sugar market next year as more sugarcane will be diverted for ethanol production in Brazil and India will produce less," he said, adding India's production this year was expected to be slightly higher than the current estimates of around 26 million tonnes.
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