Bumper sugar harvests in Thailand, India and the Philippines are tilting the global balance into surplus, sparking fierce competition and piling pressure on prices as fears over a slowdown in the world economy knocked futures off highs. New York raw sugar futures have slid more than 11 percent since hitting a five-month high at 31.68 US cents in late July, weighed down by fears of a global recession, although worries about lower output in Brazil cushioned the fall.
These concerns will dominate policymakers, traders and industry officials, including Peter Baron, executive director of London-based International Sugar Organisation, at a sugar conference in Cebu, the Philippines next week. The industry will also ponder the prospects of a pick up in demand in top consumer India ahead of year-end religious festivals and New Delhi's reluctance to allow more exports above what it has agreed, as well as hopes of strong buying from China, which may offer some relief to sellers.
"The main focus of the market really comes down to production prospects in India, Thailand and Brazil, and how are consumptions evolving in China and also in India," said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia (CBA) in Sydney. "It really comes down to the fundamental balance sheet equation."
The higher production in India - which may churn out 26.5 million tonnes in 2011/12, above the country's estimated annual consumption of 22 million tonnes - has prompted the world's largest consumer to start exporting excess sugar. The regional excess is already hitting suppliers, with some trading houses offering Philippines sugar at a discount to New York futures as they try to shift 200,000 tonnes of low-quality raw sugar stocks, dealers said.
The Philippines wants to sell sugar this year because of excess domestic output, but so far just 66,000 tonnes have been booked for shipment to Japan, Indonesia and South Korea. "It's not selling at all.We are offering Philippine sugar at a discount of as much as $30 to $35, but there are no takers," said a dealer in Jakarta. Thailand, the world's second-biggest sugar exporter after Brazil, is expected to produce at least 9.2 million tonnes in the current 2011/12 crop, but dealers see output as high as 10 million tonnes, from a record 2010/11 output of 9.6 million tonnes.
STIFFENING COMPETITION But analysts will look for signs of more demand in Asia, which along with a further cut in estimates of Brazil's main centre-south sugar cane crop due to frost and falling yields, would offer some support.However, easing port congestions could see smoother exports from Brazil. Sugar merchant Czarnikow expects Asian interest for Brazilian sugar to rise because of the region's population growth, urbanisation and rising incomes, and this would add to the competition in the region.
China, the world's second-largest economy, could import between 2.2 million and 2.5 million tonnes of sugar from the international market this year, including from Brazil, and could become the top market for Brazilian exports, possibly in 2011/12, said the Latin American country's top private sugar consultancy Datagro. "China buys sugar from Brazil due to its better quality, as most Chinese buyers complained that the quality of Thai sugar is still low compared to raw sugar from Brazil," said a Bangkok-based trader.
Another trader said: "Chinese buyers even accept higher freight costs to buy from Brazil because the quality is better.Some Chinese buyers said Thai raw sugar gives lower yield when it was processed into white." But producers are confident that demand in the region is expected to pick up, though Indonesia has disppointed the market by deciding not to issue additional import permits for raw or white sugar this year due to ample domestic supply.
"I see strong demand from several destinations, including China, Vietnam, Cambodia and Laos," a Bangkok-based trader said. Rising demand in the Middle East could also see Asian exporters ramping up competition for a bigger market share and more Thai sugar has made its way to Russia in the first half, tradersReuters. Asia and the Middle East, which now account for almost 75 percent of global raw sugar demand, have taken 60 percent of Brazilian sugar exports this season, said merchant Czarnikow.
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