Prices of global raw sugar have dropped by almost 37% in New York and with all major producing countries like India and Brazil expected to better their production in 2010-2011 marketing season that starts in October, most analysts predict that the market will ease further. However, in an exclusive interview with FE?s Sanjeeb Mukherjee, Sergey Gudoshnikov, senior economist with the International Sugar Organisation (ISO), the world?s premier sugar research and analysis firm, tells that the market might not ease as predicted because of low closing stocks and narrowing surplus. He also speaks about the country?s sugar production in 2010-2011 and factors that could impede it and also on deregulating the sector. Excerpts:
According to your estimate what could be the global demand-supply situation in sugar in 2009-10 (October-September) and also in 2010-2011?
The year 2009/10 (October-September) is the second consecutive year of large global deficit (about 6 million tonne on the basis of raw sugar) while a new season may generate about 2.5 to 3 mln tonne of world surplus (the positive differential between projected world production and consumption).
What are you views on the current situation in the global sugar markets and how do you view this?
Currently, the market is in some sort of watershed between two seasons of record high deficit and looming global surplus in 2010/11. During a time of radical changes in fundamental, the market is nervous and prices are volatile.
How do you see sugar prices panning in the next few months?
Not an easy question to answer. A lot will depend on weather developments in key producing areas. If weather patterns are normal, we would expect a gradual ease in world prices. It is also important to note that at present, sugar prices in the world market are driven by a number of factors, sometimes not connected to sugar fundamentals, e.g. currency rates, oil prices, general macroeconomic situation, etc.
Globally, too, are we expecting a year of glut in sugar in 2010-2011?
A global surplus of 2.5 to 3 million tonne would hardly cause any serious glut in the market. The new season starts with a critically low level of stocks. Before the normal stocks/consumption ratio is achieved the small surplus is manageable.
Specifically, in the Indian context, what is your estimate of sugar production in the country in 2009-10?
At the beginning of the cycle, the ISO expected India to produce about 16 million tonne, white value. In contrast to many market analysts, we did not downgrade this projection in the course of the crop year. Even so, the ISO has proved to be too conservative. In May, we revised India?s figure upwards to 18.3 million tonne, white value, while the final figure will be close to 19 million tonne.
There is talk that Indian sugar production would rise to more than 25 million in the next crop season that starts October 1, 2010. What are your views on this?
Based on the information available at present, it is quite likely (India?s sugar production rising to 25 million tonne in 2010-2011), but the weather can still correct both ways this initial assumption.
Finally, Indian sugar millers are demanding re-imposition of import duties on white and raw sugar to check the sharp drop in prices. And, also there is move to de-control the sugar sector. What are your views on this and how should the government go about it?
The ISO is not in a position to provide this sort of advice to governments. Two years ago, when India was exporting more than 4 million tonne of sugar a year, the ISO prepared a study on India?s future role in the world sugar trade. That time our conclusion was that the pronounced cyclicality cannot be cured due to lack of alignment between cane and sugar prices under the existing regulatory framework. As we understand, the sector deregulation has not progressed anywhere since then.
