Scramble for sugar in South Asia

Written by fe Bureaus | Updated: Aug 27 2009, 04:04am hrs
Sugar futures rose for the first time in three sessions on speculation that imports may rise as global demand exceeds production for a second-straight year. India, the largest consumer, has contracted to import 4 million tonne of sugar this year, according to the Indian Sugar Mills Association. Bangladesh Sugar & Food Industries Corp, a state-owned producer, plans to purchase 1,50,000 tonne of white sugar this year. And Pakistan may import as much as 1 million tonne by the end of December, the Sugar Mills Association said.

Bangladesh Sugar & Food Industries Corp will seek bids to buy 25,000 tonne of sugar in a months time, said Parimal Chandra Saha, director, marketing. The shortage is likely to persist even next year as cane will be in short supply, Saha said. Private traders will also be importing raw sugar to meet the deficit. Bangladesh joins Pakistan in seeking imported sugar, adding to worldwide demand thats forecast by the International Sugar Organisation to exceed output by 9.35 million tonne. Sugar has almost doubled this year in New York.

Bangladesh had earlier ended a tax on imports of raw sugarand more than halved the duty on refined sugar import to boost supply after output more than halved to 80,000 tonne in the year ended June. Production this year may rebound to 1,01,000 tonne and wont return to the normal level of 1,45,000 tonne because of a decline in the crop area, Saha said.

The country consumes close to 1.4 million tonne a year and produces 1,46,000 tonne. It imports white sugar from countries including Brazil and Thailand to bridge the deficit.

The market is holding on proximity to additional demand, said Jim Cassidy, the head sugar trader at Newedge USA in New York. India, Pakistan, Bangladesh, Egypt and Mexico may make purchases in the near term, he said. Excessive rain delayed harvest in Brazil, the top producer, and dry weather limited production in India, the second-biggest.

The impact of the increase in demand in South Asia has been further accentuated by the spurt in Chinese imports. Sugar imports by China, the worlds second-largest consumer after India, climbed in July after lower domestic prices earlier this year encouraged buying. Purchases were 1,32,982 tonne from about 90,000 tonne in June and totalled 8,63,217 tonne in the first seven months, up 57% from a year ago, the customs bureau said. China contracted quite a lot of shipments in the first half when international prices were around 14 US cents a pound, cheaper than the domestic market, Guo Jin, manager at Great Wall Futures Co, said from Zhanjiang, Guangdong. Those shipments arrived in the past few months.

Raw sugar traded in New York surged 71% since April, faster than the 24% gain in prices on Zhengzhou Commodity Exchange in the same period. Sugar climbed to a 28-year high of 23.33 cents a pound on August 12 on speculation that adverse weather is reducing output in India and Brazil, the largest producers. Purchases in the latter half of the year may not rise much because prices in the international market have surged more than the domestic sugar prices, Guo added. China is unlikely to import significant amounts in the months ahead.

Raw-sugar futures for October delivery rose 0.12 cent, or 0.5%, to 21.96 cents a pound at 11:01 am on ICE Futures US. Before today, the price jumped 85% this year on concern that a drought may curb output in India and that too much rain is slowing the harvest and reducing yields in Brazil. The actual deficit weve been anticipating is just the beginning, and it may be more extensive and last longer than many had expected, Cassidy said. The global deficit in the year ending September 30 may reach 9.35 million tonne, a wider gap than the 7.8 million projected in May.

Unlike other bull markets, we have become ultra-dependent on one producer, Brazil, Cassidy said. They had a healthy first half of August. Its started raining. You are probably going to see a crush in the second half of August

Sugar has been in a consolidation range over the last two weeks, Cassidy added. The price has traded from 20.64 cents to 23.33 since August 10. The net-long position rose by 4.8% in the week ended August 18 after dropping 18% a week earlier, US Commodity Futures Trading Commission data show. It is similar to what happened in 2004 to 2006, Cassidy said. The fund net position in that bull market never really changed from 12 cents to 19.73 cents, the 24-year high reached on February 3, 2006, he said. We dont expect to see the net-fund position change much for the remainder of the bull market, he said. New highs are going to have to come from resurgent commercial buying and reduced overhead selling.

Worldwide sugar demand will top output by 9.35 million tonne in the year ending September 30, according to International Sugar Organisation. The group in May forecast a shortfall of 7.8 million. Futures are up 92% this year. Sugar will make higher highs because of a global production deficit, said Michael K. Smith, the president of T&K Futures & Options in Port St Lucie, Florida. Its still in a bull market.

With inputs from Bloomberg