The Hindu Business Line : Indian demand unlikely to fuel global sugar prices

With domestic mills and refiners booking over two-thirds of their raw sugar requirements for the coming 2009-10 season (October-September), demand from India is unlikely to help sustain the current global bull run in the sweetener.

“Having already bought so much ahead of the new season, I don’t see Indian demand really driving up prices in the immediate run. Instead, it is likely that purchases from other deficit markets such as Mexico, Pakistan, Egypt, Taiwan, Iran and Iraq that will keep the world market tight,” said Mr Jonathan Kingsman, the Managing Director of the Switzerland-based consultancy, Kingsman SA.

Carry Forward

On Tuesday, the Chief Executive Officer of Shree Renuka Sugars, Mr Narendra Murkumbi, told the Kingsman India Sugar Summit here that the Indian industry had bought about 2.4 million tonnes (mt) of raws during 2008-09, of which one mt was refined and the balance 1.4 mt carried forward to the new season.

In addition, mills have contracted another 2.6 mt of imports, which would add up to a total 4 mt and enough to meet two-thirds of the estimated 6 mt raw refining capacity in the country.

No urgency

“You may have to still buy 1–2 mt. But there is obviously no urgency, more so when there seems to be enough stocks to meet the peak (festival) demand for the next two months, after which mills will start crushing anyway,” Mr Kingsman told Business Line.

Some of this drying-up of Indian demand is reflected in world prices. On Tuesday, the October ‘No. 11’ raw sugar contract at New York settled at 24.24 cents a pound ($534.40 a tonne). While the January and March futures are trading higher, the contracts for subsequent months, however, are ruling steadily lower on expectations of a production recovery in India.

A similar trend can be seen in London white sugar prices, where the October contract is quoting at $582.50 a tonne, while being $612.50 for December and $630.5 for March. The subsequent months contracts are again trading lower: $614.50 (May), $582.70 (August), $561.8 (October), $543.2 (December) and $518.20 (March 2011).

White sugar

While the markets are pointing to lower prices in the months ahead for both raws as well as whites, they are, at the same time, also factoring in a widening white sugar premium. For instance, while the difference between London whites and No. 14 raws is only $48 a tonne for October, the premium is $66 for March and $92 for October 2010.

“The markets probably expect India to import more of white sugar in the months ahead, (given its limited raw refining capacity) and this is captured in the widening white sugar premium,” Mr Kingsman noted.

World sugar deficit

According to him, the immediate support to global prices was coming from countries that were yet to firm-up imports to cover supply shortfalls. Mexico’s import requirement alone is estimated at 0.9 mt, while the same for Egypt and Pakistan is 0.4-0.5 mt each.

“Besides, you also have to account for structural factors such as the European Union, which used to be exporting 6–8 mt of sugar annually and has now turned a net importer to the tune of 2.5 mt. And there is a limit to how much Brazil can make up for the shortfall”, Mr Kingsman added, even as he projected the global sugar deficit for 2009-10 (April-March) at only 7 mt, against the 16 mt in 2008-09.