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‘Dangerous to Presume’ Sugar to Drop Amid Restocking Drive

Sugar-importing nations including China, the second-biggest consumer after India, may take advantage of a rising global surplus to rebuild stockpiles, potentially supporting prices, ED & F Man Holdings Ltd. said.

“It’s dangerous to presume that the market is now on a downward trajectory because of the surplus,” said Farideh Bromfield, head of commodities research at ED & F Man. “There’s renewed interest from a number of importers,” said Bromfield, who’s studied sugar and biofuels for more than two decades.

Sugar has been this year’s worst-performing commodity on prospects for increased supply. Global output may beat demand for a second year, more than quadrupling the surplus to 10.575 million metric tons in 2011-2012 and possibly driving prices lower through to October, broker Kingsman SA forecast yesterday.

“China is evolving to be a price-maker, rather than a price-taker,” Michael Coleman, managing director at Aisling Analytics Pte, said yesterday in Singapore, referring to the nation’s strategy of entering the market when prices slump.

Raw sugar has dropped 21 percent this year on the Standard & Poor’s GSCI Index, the biggest drop among the gauge’s 24 commodities. Prices have fallen from a three-decade high of 36.08 cents per pound on Feb. 2 and ended at 21.33 cents in New York yesterday.

The price may decline further to 20 cents before rebounding to as much as 30 cents, driven in part by restocking by China and other importers, Alan Winney, chairman of Queensland Sugar Ltd., said in an interview in Singapore today. Futures last traded at less than 20 cents in September.

China’s Stockpiling

The forecast from Lausanne-based Kingsman would be the biggest surplus since 2006-2007, said John Stansfield, a senior analyst at Olam Europe Ltd. Olam International Ltd. trades farm commodities including sugar. About 2.5 million tons of next season’s surplus may go to China for stockpiling, Kingsman Managing Director Jonathan Kingsman said yesterday.

China, which doesn’t make enough sugar to meet demand, has been selling from state reserves to cool local prices that are higher than global rates and curb inflation. China’s output may drop to 10.5 million tons this year, down for a third year, the China Sugar Association said last month. Demand may be more than 13.5 million tons, according to the Guangdong Sugar Association.

Inflation is “the most pressing problem” facing China, Vice Premier Wang Qishan said at talks in Washington this week. Consumer prices rose 5.3 percent in April from a year earlier, exceeding the government’s full-year target for a fourth month.

Deficit to Surplus

The sugar market’s transition from two years of global deficits to two years of surpluses “will provide an opportunity for countries to rebuild stockpiles, including China,” Bromfield said in an interview in Singapore yesterday.

China may raise its import quota by 200,000 tons from 1.9 million tons, Bromfield said. That, plus purchases from Cuba of 350,000 to 400,000 tons under a bilateral pact, may push imports to 2.5 million tons in the year to Sept. 30, she said.

China’s imports will rise to 2.5 million tons in the year to Sept. 30, said Pierre-Henri Dietz, an analyst at Sucres et Denrees SA. That’s 39 percent more than the U.S. Department of Agriculture estimate of 1.8 million tons. In 2011-2012, China may buy 1.5 million to 3 million tons depending on the outcome of the next cane and beet crop, Dietz said.

“Historically, China buys very well,” waiting for prices to go down, ED & F Man’s Bromfield said. Her forecast for China’s imports this year compares with Olam’s Stansfield’s call of 2.3 million tons. Paul Deane, an analyst at Australia New Zealand Banking Group, said May 9 that China may buy 2 million tons in 2010-2011 and 2.7 million tons in 2011-2012.

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