Sugar Surplus Seen for a Second Year, Cutting Costs for Coca-Cola

Sugar output may exceed demand for a second year after farmers boosted planting as futures surged, pushing prices lower, Standard Chartered Bank said. That may lower costs for drinks makers like units of Coca-Cola Co. (KO)

Sugar futures will average 24 cents a pound in New York in 2011, about 15 percent lower than the average so far this year, before rebounding to 25 cents next year, said Abah Ofon, an analyst at the bank.

Futures surged to 36.08 cents a pound in New York in February, the highest price since 1980, boosting costs for food and drink makers. Coca-Cola Hellenic Bottling Co SA (EEEK), the world’s second-biggest Coke drinks bottler, yesterday reported its first quarterly loss since December 2008.

“The sugar price is coming down in the world market quite dramatically, so that will give us a different cycle for next year,” Robert Murray, chief financial officer at Athens, Greece-based Coca-Cola Hellenic, said on a conference call yesterday. Sugar accounts for 12 percent of the cost of goods sold, he said.

Higher input costs, particularly from sugar and polyethylene terephthalate, a resin used to make plastic bottles, “impacted profitability” in the first quarter, Chief Executive Officer Doros Constantinou said in a telephone interview yesterday.

Thai Output

The sugar market will have another year of surplus in the season beginning October after output exceeds demand by about 1 million metric tons in the current season ending Sept. 30, ending two years of deficits, Ofon said in a phone interview from Singapore yesterday. He did not give a surplus forecast for the next season.

Ofon’s estimate for this year’s surplus matches that of the International Sugar Organization, which raised its outlook on May 5, from 200,000 tons in February.

Cane output in Thailand, the world’s second-largest exporter, may climb to a record 94 million tons this season ending Oct. 31, with sugar production of 9.6 million tons, Prasert Tapaneeyangkul, secretary-general of the country’s Office of the Cane & Sugar Board, said today. Next season’s cane harvest may match this year’s level if the nation doesn’t have a drought or heavy rains, Prasert said.

Still, futures will not collapse as importing countries including China are likely to take advantage of any dip in prices to seek supplies overseas to rebuild domestic stockpiles, Ofon said.

China Purchases

“China would remain a net importer next season,” Ofon said. “It would be looking to buy, should prices dip significantly,” he said, without providing an import forecast.

China’s purchases may rise 35 percent to 2.7 million tons in the year ending September 2012, Paul Deane, an agricultural economist at the Australia New Zealand Banking Group Ltd., said in a May 9 interview.

Futures may rebound in the second quarter of 2012 as supplies from Brazil and Thailand begin to dry out and other exporters including India and the European Union hold back sales to rebuild stockpiles, Ofon said.

“While globally there is a surplus, that surplus is not necessarily going to be exportable,” Ofon said.

Raw sugar for July delivery jumped 4.3 percent in New York yesterday to close at 21.87 cents a pound.

Sugar production in India may reach 24.5 million tons this year, the food ministry said last month. That would be the first time in three years that output exceeded demand.

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

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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