Sugar glut sends sweetener to two-year low

Fri Sep 7, 2012 6:39pm IST

* Brazil production gathers pace after slow start

* India monsoon revives, boosting crop outlook

* ISO forecasts wider global surplus in 2012/13

By Nigel Hunt

LONDON, Sept 7 (Reuters) - A turnaround in weather fortunes for leading sugar producers has boosted the sweetener's surplus, sending futures to 2-year lows with further losses expected.

The global sugar market balance has moved towards a wider surplus than originally anticipated, with improved weather from the top two producers India and Brazil.

As a result, October raw sugar futures traded on Intercontinental Exchange (ICE) hit a two-year low of 18.81 cents a lb on Thursday, barely more than half the peak of 36.08 cents traded in February 2011.

"I do not see anything that could lead to a recovery of prices in the near future," analyst Stefan Uhlenbrock of F.O. Licht said.

"I think the main subject is the improved weather in Brazil and this is obviously pressuring the market and it will bring more sugar in coming weeks and months with crushing there at a very strong pace," he said.

Rains kept sugar mills in Brazil from crushing at full capacity earlier this year but eased in early July and the industry has produced at an impressive rate since then.

"The sugar market is in good supply. If you look at Brazil, things have picked up quite well after rain was stopping the harvest for a while earlier in the season," said analyst Muktadir Ur Rahman of Capital Economics.

"We expect sugar prices to remain weak," he added, noting his end-year price forecast was 18 cents a lb.

Licht analyst Uhlenbrock said a further bearish factor for prices has been the weakness of Brazil's currency which lowers costs in dollar terms for the country's sugar mills.

The Brazilian real was around 2.03 per dollar on Friday, up from around 1.65 a year ago.


The crop outlook has also improved in India, the second largest producer and top consumer.

India's monsoon has revived, lifting the threat of prolonged drought in the major sugar producer with a second consecutive week of heavier-than-normal rains.

"Concern about production in India has waned given the revival of the monsoon," Capital Economics' Rahman said.

A huge rise in production in Russia, at one time the world's leading importer of raw sugar, has also curtailed demand for the commodity on international markets.

F.O. Licht on Friday forecast that Russian beet sugar production would climb to 5.50 million tonnes, raw value, in 2012/13, marginally up from the prior season's 5.48 million but far above the 2.96 million produced in 2010/11.

"Russia will see bumper output for a second consecutive year, at levels that seemed unimaginable just a few years ago," Licht said.

"The country will therefore remain absent from the world market as a large-scale raw sugar importer for the second consecutive year and seems likely to remain an exporter of beet sugar to nearby landlocked neighbours."

The International Sugar Organization last week said it expected a wider global sugar surplus of 5.86 million tonnes in 2012/13 (October/September), up from the prior season's surplus of 5.19 million tonnes.

The ISO said the stocks/consumption ratio could rise to around 40 percent in 2012/13, from 37.6 percent in 2011/12.

"This suggests that the period of low stocks environment, one of the main market characteristics for the past four seasons from 2008/09 to 2011/12, would be over," the intergovernmental body said in quarterly report. (Reporting by Nigel Hunt; Editing by Veronica Brown and Mike Nesbit)

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