Sugar to hold firm in face of EU export surge

Tight global sugar supply and strong demand will counter a surge in 2005/06 EU exports and keep world prices buoyant, analysts said on Wednesday.
The EU last week decided to "declassify" - remove from its domestic quota system to sell on the world market - 1.8 million tonnes of sugar, despite a recent World Trade Organisation ruling ordering the EU to cut its exports.
Brazil, Australia and Thailand accused the EU this week of bad faith by boosting sales already ruled illegal by the WTO.
In individual statements to the body, they said world prices would fall, with Brazil saying possibly as much as six percent.
But European analysts said the quota cut would fail to halt a bull run in sugar, although they said the white sugar premium - the difference between white and raw sugar futures markets - might fall.
London white sugar futures have risen by some 16 percent so far this year, and raw sugar futures are up around 21 percent.
Analysts said tight raw sugar supplies, falling stocks, rising demand, growing use of cane to make ethanol and greater flows of speculative funds into sugar markets would probably propel sugar prices even higher over the next year.
"We believe world prices (raws and whites) will be higher in a year's time than they are now," Jonathan Kingsman of Paris-based sugar broker J.Kingsman told Reuters.
He forecast 6.7 million tonnes in 2005/06 EU sugar exports, and believed the exports would not pressure prices downwards because they would counter tight raw sugar supplies.
"We believe that sugar is needed in the market to offset a raw sugar deficit in the first half of 2006," he said.
Toby Cohen, director of research at London-based merchant Czarnikow, said futures prices were driven by a wide range of factors not all of which were directly sugar related, especially given the expansion in speculative involvement in the market.
However, from a fundamental perspective falling stocks, a lower crop in Thailand and increased allocation of Brazilian cane to ethanol would be likely to support prices.