Sugar Surplus Shrinks on Quickening Demand in China to Indonesia

(Bloomberg) – The global sugar surplus is narrowing as demand accelerates in developing nations from China to Indonesia, the world’s largest raw sugar importer.

Sugar consumption may be about 3 million metric tons bigger than anticipated when the 2012-13 season began, Robin Shaw, an analyst at Marex Spectron Group, a brokerage in London, said in a telephone interview yesterday. Three million tons for the season that ends Sept. 30 would mean an increase of about 2 percent in the forecast made by the International Sugar Organization in August last year before the season began.

Global sugar output is now estimated at 183 million tons against demand of 173 million tons, leaving a record surplus, ISO says. Prices in New York fell 16 percent this year. While worldwide demand grew about 2 percent a year in the past five years, Indonesia’s imports will double this year and China’s demand is near a record, government and industry data show.

“Three million tons of extra demand has meant that the massive surplus that we all foresaw isn’t that massive, it’s quite moderate,” said Shaw, who has covered sugar since 1971. “If you live in a city, your mother doesn’t do the cooking, you go out and you buy a ready-made meal and that contains sugar. You don’t have mom making soft drinks at home so you go out and buy coca cola. It’s a westernization of eating habits.”

Sugar Futures

Raw sugar futures declined 37 percent the past two years as surpluses emerged. The futures for October delivery were at 16.43 cents a pound today on ICE Futures U.S., down from the 30-year high of 36.08 cents a pound in February 2011.

Indonesia’s raw sugar imports will double to 5.4 million tons this year, Achmad Widjaja, secretary general of the Indonesia Sugar Association, said Aug. 26. China imported 2.5 million tons from October through July, customs data show. It will probably take in about 3.5 million tons, compared with an earlier forecast of about 2 million tons, Marex Spectron estimates. The record was 4.4 million tons in 2011-12, according to the U.S. Department of Agriculture.

Chinese imports are climbing as a government policy to stockpile local sweetener pushed domestic prices above the international market, prompting more buying. Sugar is gaining market share over high-fructose corn syrup, an alternative sweetener, because sugar prices have dropped, Shaw said.

“We are surprised to see how demand is still coming,” Fabienne Pointier, an analyst at Lausanne, Switzerland-based researcher Kingsman SA, said by phone yesterday. “China keeps importing, demand is still there from Indonesia. Most of the unexpected demand is coming from the Far East.”

Brazil Shipments

Brazil, the world’s largest producer and exporter, shipped a record 15.4 million tons of sugar from January to August, according to consultancy SA Commodities and shipping agency Unimar Agenciamentos Maritimos, both in Santos, Brazil. That’s up from 12.4 million tons in the same period last year, 14.4 million tons in 2011 and 15.2 million tons in 2010.

“Demand has been strong,” said Nicolle de Castro, an analyst at SA Commodities. “People tend to remember 2010 as the year of very high demand because of all the congestion we had at the ports, but we’ve shipped more this year.”

With output falling in 2013-14 for the first time since 2008-09 and demand rising 2.1 percent, the surplus will shrink to 4.5 million tons, ISO said last month. More consumption may mean a smaller surplus in 2013-14 and support for prices, said Pointier of Kingsman, a unit of McGraw Hill Financial Inc.’s Platts. Kingsman will update its 2013-14 forecast next week.

“The important lesson to take from all of this is not only the surplus this year is more moderate, but the surplus we are expecting for next year, if this pattern is continued, is going to disappear and we may even be in deficit,” Shaw said.