Surge in Indian sugar prices worries buyers

MUMBAI (Reuters) - Dubai's Al-Khaleej Sugar, the biggest buyer of Indian raw sugar, is concerned about price increases in India and will find supplies attractive when prices fall, company officials said on Wednesday.

"We have bought around 1.5 million tonnes of raw sugar from India ... Indian prices have risen in the last three-four months. We are watching the trend," said a company official, who asked not to be named.

The purchases were made since July, when India struck its first raw sugar deal with the sale of 500,000 tonnes to Al Khaleej.

The official said the ex-factory price of raw sugar should drop by 500 rupees ($12.50) per tonne from the current level of around 11,500 rupees per tonne. Four months ago, it was 9,500 rupees per tonne.

Prices have risen in the past few months due to expectations that sugar output in the new crop year beginning October would fall to 26 million tonnes, down from previous estimates of 32 million tonnes.

Heavy rains in Maharashtra and a dispute over prices paid to farmers in Utar Pradesh delayed crushing, leading to a fall in the output estimate.

"If India continues to be a long-term supplier of raw sugar, it makes sense for us to buy from this country rather than Brazil because of the freight costs," said another company official.

Al Khaleej, which had sourced raw sugar from the world's biggest producer Brazil, has a capacity of 1.5 million tonnes to process raws into refined sugar.

India consumes about 20 million tonnes of sugar a year, but produced a record 28.4 million tonnes last year, encouraging producers to export and making the country a regular supplier of raws to the Middle East and to neighbours like Bangladesh.

Adam Leetham, director of Czarnikow Sugar India Pvt Ltd, one of the world's leading traders, said India was likely to export more than 4 million tonnes in the current crop year to September.