Sugar prices, already depressed by a global glut, have further room to fall in the coming months due to the weight of exports from India as the country becomes the world's top supplier of the sweetener. India is set to overtake Brazil as the world's leading sugar producer in the current crop year, and is forecast to harvest a second consecutive record crop of 32-33 million tonnes.
According to the Rome-based UN Food and Agriculture Organisation (FAO), world sugar output in 2007/08 (October/September) may reach 169 million tonnes - about 12 million tonnes higher than projected demand of 157 million. In India, lower domestic prices are expected as a result of new crop supplies flowing into the local market and warehouses.
"As such, the issue is not whether India exports but how large exports will be," French merchant Sucden said in its latest quarterly report, noting that Indian millers would likely sell raw sugar on the world market at around 10.5 cents per lb.
Raw sugar prices, which have fallen by 17 percent so far this year, could drop further under the weight of supplies from India, Brazil, Thailand, China, Indonesia, Pakistan, the Philippines, and Vietnam, analysts say. ICE March raw sugar futures were up 0.01 cent at 9.76 cents per lb by 1205 GMT on Wednesday.
One senior Western analyst, who asked not to be identified, estimated that India would export between 2.0 and 2.4 million tonnes in the crop year between October 2007 and September 2008. A key question was how much of this tonnage will be sold to the huge al-Khaleej refinery in Dubai.
The analyst said Dubai was expected to buy around 1.7-1.8 million tonnes of raw sugar in 2007/08 and might source all of it from India instead of its traditional supplier Brazil. India has a strong freight advantage over Brazil to the Middle East, at a time of soaring freight rates. "The sugar price will depend on how much (they) Indians export," the analyst said. "We're probably headed lower."
With another centre/south Brazilian cane crop seen at 460-480 million tonnes for 2008/09, the raw sugar market should break below its recent range and 8 cents per lb seems to be a fair level, Sucden said.
However, soaring crude oil prices could lead funds to invest in energy crops, such as sugar and corn, and the weak dollar could also provide support for prices. Brazilian cane is used as the feedstock for ethanol biofuel.
On the raw sugar market, India has already sold about 1 million tonnes for the end of 2007/first half of 2008, out of which half the tonnage will go direct to Middle Eastern refineries.
On the white sugar market, India should be a strong exporter of crystals (low quality whites) and will benefit from the freight advantage over Brazil in its regional markets. India should remain the most bearish factor in the sugar market at least until 2009, but there are signs that it will reduce production in the 2008/09 crop year.
The International Sugar Organisation (ISO) said last week in its latest quarterly report that the outlook for the global sugar balance in 2008/09 was less gloomy. "First tentative indications show that next season's gap between world production and consumption may disappear and even a small global deficit comes into view," the London-based intergovernmental body said.