Sugar Seen Extending Rally by Czarnikow as Demand Cuts Glut

Sugar is poised to extend its advance as global production drops for the first time in five years and demand increases from China to Indonesia and the Middle East, said Czarnikow Group Ltd.

Futures traded in New York may “walk their way back towards the 20 cents level” as consumption expands, said Toby Cohen, a director with the company. That compares with 18.19 cents yesterday. Output will exceed usage by 2 million metric tons in the 2013-2014 year that starts in October in most countries, the company said by e-mail on Sept. 5. That was about half its previous surplus estimate of 3.9 million tons.

Prices surged 11 percent in September and are on course for the biggest monthly gain in more than two years on signs the global glut is shrinking and as yields decline in Brazil, the largest producer and exporter. Higher futures may slow the slide in global food costs that dropped in eight of the past 11 months, according to the United Nations. Futures are still 50 percent below the 30-year high reached in February 2011.

“I believe the downtrend in prices is exhausted,” said Cohen by e-mail on Sept. 19. While consumers have responded to low prices by increasing purchases, “producers are suffering from very low returns, which in some cases are not even covering operation costs,” he said.

Sugar fell 6.8 percent this year on ICE Futures U.S. The Standard & Poor’s GSCI gauge of 24 commodities declined 1.6 percent and the MSCI All-Country World Index of equities advanced 14 percent. The Bloomberg U.S. Treasury Bond Index lost 2.5 percent.

Less Sugar

Global output will probably drop to 181.8 million tons in 2013-2014 from 185.8 million tons a year earlier and be smaller than a previous estimate of 182.8 million tons, according to London-based Czarnikow, which traded 2.4 million tons of raw sugar last year and 800,000 tons of the refined variety.

“We expect the first quarter of next year to be tight,” said Ivan Melo, a commercial director for sugar at Raizen, a joint venture of Royal Dutch Shell Plc (RDSA) and Cosan SA Industria & Comercio, in Sao Paulo. “The market should go up a little bit depending on how the tightness will be fulfilled,” he said in an interview in New Delhi on Sept. 17.

Consumption in China, the world’s second-largest economy, will climb to 16.25 million tons raw value in the 12 months starting on Oct. 1 from 15.80 million tons a year earlier, according to the London-based International Sugar Organization. Demand in Indonesia will increase to 5.92 million tons from 5.74 million tons, it said in a report last month.

China, Indonesia

“China continues to be an important influence on the market by sporadically buying large quantities of sugar,” said Charlotte Kingsman, an analyst with Kingsman, a unit of McGraw-Hill Financial Inc. (MHFI)’s Platts. “Indonesia has been buying large quantities of raw sugar. The demand in the country is growing at a very steady pace,” she said by e-mail Sept. 19.

India, the second-biggest producer, may have to export 2 million tons to 3 million tons to cut inventories from a five-year high, according to Rahil Shaikh, managing director of ED&F Man Commodities India Pvt., in New Delhi on Sept. 16.

“If India has the ability to send the two million tons of sugar that they need to export as raw sugar at the beginning of the next year, then the market will not go up,” said Raizen’s Ivan Melo.

To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net; Prabhudatta Mishra in New Delhi at pmishra8@bloomberg.net

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

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