Sugar Surplus Won’t Drive Prices Down More, Copersucar Says

(Businessweek) – (Updates with CEO comment in third paragraph.)

Feb. 6 (Bloomberg) — A forecast sugar surplus that drove the price down the most in a decade last year won’t push rates lower as consuming countries rebuild stockpiles of the sweetener, according to Copersucar SA.

Raw sugar will trade between 24 cents and 26 cents a pound until July, Paulo Roberto de Souza, chief executive officer of Copersucar SA, a trading and producers’ cooperative based in Sao Paulo, said in an interview at the Kingsman sugar conference in Dubai today. The current season will have the first surplus after three years of deficits, he said.

“A possible surplus of 5 million to 7 million metric tons for a market of 150 million tons is very small,” de Souza said. “The surplus should not affect prices too much because there will be a rebuild, if not complete at least partial, of stocks. It’s natural that we will see stocks rebuilding in India and other consuming countries.”

India is the world’s largest consumer of sugar. The country’s demand will be 22 million tons in the current season, Abinash Verma, director general of the Indian Sugar Mills Association, said in his speech at the conference yesterday. China may import as much as 3.5 million tons this year, higher than the market is currently anticipating, de Souza said.

The forecast surplus will not be enough to bring the global stocks-to-use ratio to the historical level of 35 percent to 36 percent, after three consecutive years of deficits “dried up the pipeline,” Copersucar’s de Souza said.

Center-South Crop

The sugar-cane crop in Brazil’s Center-South, the main growing region of the world’s biggest producer of the sweetener, may rise to 520 million to 540 million tons in the 2012-13 starting in April there, he said. That compares with about 492 million tons in the current season, he said. Sugar output in the region may advance to 33 million to 34 million tons from about 31 million tons in 2011-12, de Souza said.

Prices may be pressured temporarily from July onwards after the harvest in Brazil starts and exports pick up, he said. Rates probably won’t fall below 22 cents a pound for an extended period of time as it would encourage millers to produce more ethanol at the expense of sugar, he said. Both the sweetener and ethanol are made from the cane raw material in the South American country. Copersucar has 48 mills in Brazil.

“If the harvest in Brazil disappoints from the productivity per hectare perspective, the tendency is that you will have higher prices from July onwards,” de Souza said. “If the crop in Brazil comes in above expectations, then we can see a slightly bigger bearish pressure,” he said, adding a potential switch to ethanol would prevent prices from falling too far.

Sugar Mix

Growers in Brazil will direct about 48 percent of cane to sugar production in 2012-13, de Souza said. A potential switch to more biofuel in Brazil could wipe out 3 million tons of sugar production, he said.

Both the sweetener and ethanol are made from the cane raw material in the South American country.

It’s too early to say that there will be another global surplus next season, he said. While the 2012-13 crop starts in April in Brazil, harvesting begins in October in most countries.

“The reaction to production we had this year was a consequence of the price at and over 30 cents a pound,” he said. “If we are talking about a market between 24 cents and 26 cents a pound, the incentive to expand production has diminished.”

–Editors: Sharon Lindores, John Deane

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