Sugar Prices Seen Pressured by ISO on Fourth Year of Surplus (1)

(Businessweek) – Sugar prices may remain under pressure as the weakening currency of top producer Brazil helps global supplies exceed demand for a fourth consecutive year, according to the International Sugar Organization.

The depreciation of the real against the dollar has reduced the impact of lower sugar prices on producers, Executive Director Peter Baron said in an interview yesterday. The surplus will reach 4.5 million metric tons in the year starting Oct. 1, the London-based ISO said in an Aug. 22 report. Prices are set for a third annual drop this year, when the glut is forecast at a record 10.3 million tons. Baron didn’t give a price estimate.

Sugar plunged 40 percent since reaching a three-decade high in 2011 as growers from Brazil to Australia raised output. Prices will suffer “more losses” in 2013-2014 even as the surplus shrinks, the ISO said in the report. Exports from India, the second-biggest grower, may jump more than threefold next year as Asia’s worst performing currency spurs demand from importers, according to Shree Renuka Sugars Ltd. (SHRS), the country’s biggest refiner.

“As long as the fundamental situation persists at the moment, prices will remain under pressure,” Baron said in Bali, Indonesia, where he spoke at an industry conference today. “We now have production that is higher than consumption, export availability that is higher than import demand, and stock to consumption higher than 41 percent. Something massive must happen to change this situation.”

Price Declines

Sugar for October delivery closed at 16.47 cents a pound on ICE Futures U.S. on Aug. 23, down 16 percent this year. Futures touched a high of 36.08 cents in February 2011 and a three-year low of 15.93 on July 16.

While futures dropped, weakening currencies boosted the incentive for growers to ship more of the sweetener priced in dollars. The Indian rupee weakened 14 percent and Brazil’s real 13 percent this year, making them the second- and third-worst among 24 emerging-market currencies tracked by Bloomberg.

“In Brazil, production costs are in the order of 17 to 18 cents,” said Baron, who described the country as a price “setter”. “With the real’s depreciation against the dollar, they can still survive. Many currencies depreciated against the dollar, so the low prices didn’t hit them too hard.”

Thailand, the second-biggest exporter whose baht has dropped 4.3 percent, will crush 11 million tons from a record 105 million tons of sugarcane in the year starting November, according to Thai Sugar Millers Corp.

Record Supplies

Global production will fall 1.2 percent to 180.8 million tons, the first drop since 2008-2009, while demand expands 2.1 percent to 176.3 million tons, the ISO report showed. Sugar available for exports will climb to a record 57.1 million tons while import demand will fall for a third consecutive year.

World stockpiles will rise 0.5 percent to 74.4 million tons at the end of 2013-2014 and reserves as a percentage of consumption will fall to 42.2 percent from 42.9 percent, according to the report.

“Production is erratic, depending on the weather and rainfall, but consumption is relatively resilient,” said Baron, estimating growth at an annual average of about 2 percent, resulting in demand of 201 million tons in 2020.

Shipments by India may exceed 1 million tons in 2013-2014, Narendra Murkumbi, managing director of Mumbai-based Shree Renuka Sugars, said Aug. 21. Exports from the local crop may total 300,000 tons in the year that ends in September, according to the National Federation of Cooperative Sugar Factories Ltd.