Sugar Outlook `Bleak' as Prices Overreact to Coming Surplus, Kingsman Says

The global sugar surplus may be 30 percent larger than earlier estimated as bigger harvests from Brazil and India, the largest producers, drive a “period of low prices,” researcher and broker Kingsman SA said today.

The surplus may be 5.17 million metric tons in the year beginning April, reversing a two-year deficit, Jonathan Kingsman, the company’s managing director, said at a conference in Singapore today. That compares with the company’s February estimate of 3.99 million tons.

A bigger surplus may help extend a 47 percent slump in raw- sugar futures this year. Futures climbed to a 29-year high of 30.4 cents a pound in New York in February after dry weather in India and excessive rains in Brazil curbed output estimated by the International Sugar Organization to lag behind demand by 8.5 million tons in the year ending Sept. 30.

“We’re going to see a period of low prices,” Kingsman said. “You can see people liquidating positions and funds getting out, and it could be quite bleak. Prices tend to overreact -- they overreact on the upside and they overreact on the downside,” he said.

The International Sugar Organization in May said the surplus would be 2.5 million tons in the year beginning October, while Sucres et Denrees SA in April forecast a surplus of 6 million tons.

Raw sugar for July delivery slumped 4.9 percent to 14.19 cents a pound when it last traded on May 28.

‘Optimistic’ on Sugar

Still, “I’m optimistic about sugar,” Jim Rogers, chairman of Rogers Holdings, said at the same conference, adding that prices may rise over the next decade. “If the world economy does not get better, and there’s a good chance of that happening, the best thing to own is commodities,” he said.

“Two major movers in the market continue to be India and Brazil,” Lausanne, Switzerland-based Kingsman said. “As the world moves back from two sizeable deficits into a surplus situation, it is likely that pipeline stocks will be refilled.”

India’s output may expand to a revised 24 million tons in the next harvest, up from 18.75 million tons in the current year, Kingsman said. That matches the 24 million-ton forecast by the nation’s second-biggest miller, Balrampur Chini Mills Ltd.

“India’s reversal of fortunes in 2009-2010 undoubtedly reduced the extremely short stock situation over the past few months,” said Kingsman.

Bounce Back

“Global sugar consumption should bounce back in 2010-2011 given that global prices have fallen sharply,” he said today. Sugar production in the 2010-2011 crop year is estimated at 170.17 million tons of raw sugar and consumption is estimated to be 165 million tons, according to Kingsman.

Still, the sugar deficit in Asia will widen to 3 million to 4 million tons as the region’s expanding economies boost demand, Dean Nelson, managing director at commodities provider ED&F Man Asia Pte. Ltd., said in an interview today. Asia’s deficit is “becoming more pronounced and will impact traditional trade flows,” he said.

Asian consumption “continues to lead the world,” expanding 4 percent a year, compared with global demand growth of 2.1 percent, Nelson said. Demand in the region will be driven more by industrial use than personal consumption, he said.

The seven Asian countries tracked by the U.S. Department of Agriculture, including India, China and Japan, account for 35 percent of global demand estimated by the agency at 154.1 million tons for the 2009-2010 season.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

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