Sugar Production May Result in a Second Surplus Next Season, Olam Says
Sugar production may outpace demand by as much as 8 million metric tons next season, a second consecutive surplus that could help send prices down further, according to commodities trader Olam International Ltd.
Output will be 6 million to 8 million tons higher than consumption in the 2012-13 season starting in October, Piero Carello, general manager of the Singapore-based company’s sugar division in Europe, and John Stansfield, a senior analyst, said in an interview in Dubai yesterday before an annual sugar conference organized by Kingsman SA. That compares with a 9 million-ton surplus in 2011-12, they said.
“Two consecutive surpluses is bearish,” Stansfield said. “The fact that the second surplus is smaller than the first is irrelevant.”
The price of raw sugar traded in New York slumped 27 percent last year, the most in a decade, as a glut emerged after three consecutive annual shortages and prices touched a 30-year high of 36.08 cents a pound on Feb. 2, 2011. Those high prices helped dent demand, with consumption retreating in the 2010-11 season, according to Carello. “When you see prices at 30-year highs, consumption is hit,” Stansfield said.
Output in India, the world’s second-largest producer after Brazil and the biggest consumer, will climb by 1 million tons to 27 million tons in 2012-13, according to Olam, which has two mills in the South Asian country. That compares with a crop of 24 million tons forecast by a Bloomberg survey of 14 analysts.
Brazil Cane Crop
The cane crop in Brazil’s Center-South, the main growing region of the world’s biggest producer, will climb to 520 million tons in 2012-13, Olam said. That compares with 492.7 million tons in the current season, data from industry group Unica show. Harvesting of the 2012-13 crop in Brazil starts in April. In most countries the season begins in October.
Sugar production in the region will jump to 33.2 million tons, according to Olam’s estimates. Output reached 31.2 million tons this season, Unica data show.
This season’s 9-million ton surplus is likely to begin reaching the market at the end of the second quarter and expand in the third, after harvesting in Thailand, the world’s second-largest exporter, is completed in April and the new crop in Brazil starts, Stansfield and Carello said.
“What we really need to remove the surplus is lower prices to remove some of the production,” Carello said.
Prices below 20 cents to 21 cents a pound would encourage millers in Brazil to favor producing ethanol over sugar and that could help reduce the surplus, the executives said. Both the sweetener and the biofuel are made from cane in the South American country.
Ethanol-Sugar Mix
“Our analysis currently suggests that you can lose around 3 million tons of sugar production” if 5 percent of cane production is switched to producing ethanol from sugar, Stansfield said.
Raw sugar for March delivery rose 2 percent to settle at 23.94 cents a pound on ICE Futures U.S. in New York on Feb. 3, the biggest gain for a most-active contract since Jan. 19, as commodities advanced. The sweetener still fell 1.1 in the week, the second straight loss. Prices slumped 5.1 percent in the previous five sessions, capping the longest slide since Aug. 3.
Al Khaleej Sugar Co., the world’s largest sugar refinery based in Dubai, will expand purchases of sugar from India in the first half of this year, according to Jamal Al Ghurair, the company’s managing director.
Record Attendance
The refinery has already bought 80,000 tons of the sweetener from India and that number may climb to as much as 100,000 tons in the next two weeks, Al Ghurair said in an interview before the Dubai conference. Al Khaleej last tapped Indian supplies three to four years ago, he said.
A record 545 people are scheduled to attend the four-day conference, according to Jonathan Kingsman, managing director and founder of Lausanne, Switzerland-based broker and researcher Kingsman, which will release its first forecast for the 2012-13 sugar season during the event, on Feb. 7.
To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net
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