Global sugar market in huge surplus, looks to Asia

REUTERS
Posted: Wednesday, Jun 13, 2012
Bangkok: The global sugar market may see supply vastly exceeding requirement in the next crop year, leaving producers at the mercy of seasonal demand from Asia and weather-related output disruptions, industry experts said on Monday.

Weak prices have spurred demand for the sweetener from consumers in Asia, especially China, while erratic weather in top producer Brazil could offer the market much-needed support.

The global sugar surplus was revised higher to 9.3 million tonne in the 2012-13 crop year from a previous projection of 5.7 million tonne because high prices earlier in the year had spurred planting, consultancy Kingsman said.

“The fact is we do need to get acceleration in demand,” Toby Cohen, director of Merchant Czarnikow, told a sugar conference organised by Kingsman in the Thai capital. The market needs this Asian demand. The market needs that growth.

Cohen earlier told Reuters Czarnikow expects a 2011-12 global sugar surplus at 7.7 million tonne, unchanged from a prior estimate. We are comfortable with that number. We will be publishing a number for 12-13 but I am not prepared to release that just as yet, Cohen said.

Benchmark New York raw sugar futures have plunged more than 20% since hitting this year’s peak above 26 US cents a pound in February, hit by ample supplies and fears that Europe’s debt crisis could spur a global economic meltdown, hurting demand for commodities.

Kingsman pegged China’s consumption at 15.480 million tonne in the 2012-13 crop year, steady from 15.250 million tonne in the previous year. Total demand in Asia is forecast at 66.799 million tonne in 2012-13, up from 65.635 million tonne.

Total Chinese sugar consumption is expected to grow 63% in the decade to 2020, with imports likely to rise to 4 million to 5 million tonne by 2020, says Commonwealth Bank of Australia.

If you look at the rest of the soft commodities, I think sugar consumption in Asia is catching up with coffee and cocoa, said Isaac Ng, risk management consultant for soft commodities at FC INTL FCStone Asia.

If you look at China, there’s a 160% jump in terms of their coffee consumption for the past five years. I think sugar consumption is going to follow suit.

China has booked some cargoes of Thai sugar, according to physical dealers, but is now chasing raws from top producer Brazil, which fetch a small premium over the Thai sweetener.

China imported 810,345 tonne of sugar in the period from January to April, up more than 242% from a year ago. Purchases from the West Asia and North Africa have also increased ahead of the Muslim fasting month of Ramadan, I think current falls in prices are likely to attract buyers on the physical market and that helps support prices in return, said Chalush Chinthammit, Assistant Vice President of Khon Kaen Sugar Industry, Thailand fourth largest sugar miller.

Prices will be under pressure definitely, but it should not drop below 19 cents/lb. Actually, it should move between 19 cents and 20 cents as strong demand in Asia should prevent them from falling further.

As global surplus lingers, dealers will closely watch the progress of the current crop in Brazil after a slow-moving cold front bringing rain in Brazil’s centre-south, the main producing region of the world's top sugar producer, threatens to disrupt the harvest.

In April, Kingsman trimmed its forecast for 2012-13 cane output in Brazil's key centre-south sugar producing region to 510 million tonne, down 1.9% from a January forecast.

Indeed, we thought long and hard about reducing our CS Brazil sugar production estimate for this update but decided that it would be premature, said Jonathan Kingsman, chief executive of the Lausanne-based sugar and ethanol consultancy Kingsman. We do, however, warn that CS Brazil number does have downside - and that downside could even be as much as 2 million tonne. Harvesting weather in CS Brazil could therefore make a dent in our surplus.