Sugar surplus expected to shrink by 43% next season

Dubai: A sugar glut that drove prices down the most in a decade last year is set to shrink by 43 per cent next season as consumption growth exceeds the 10-year average, according to broker and researcher Kingsman SA.

The surplus will drop to 5.5 million metric tons in the 2012-13 season starting in October from 9.7 million tons this season, Lausanne, Switzerland-based Kingsman said in a statement yesterday. Global use will jump 2.7 per cent to a record 170.6 million tons, Kingsman said. That growth is higher than the annual average of 2.2 per cent in the past 10 years, according to the London-based International Sugar Organisation.

The price of raw sugar traded in New York slumped 27 per cent last year, the most since 2001, as supplies outpaced demand for the first time in four years, according to data from Utrecht, Netherlands-based Rabobank International. That helped food prices tracked by the United Nations' Food and Agriculture Organisation to fall to a 14-month low in December.

"We are seeing very strong growth in consumption in parts of Africa and the Middle East," Jonathan Kingsman, managing director of Kingsman, said in an interview for the Kingsman sugar conference in Dubai that ended yesterday.

"If you see how these economies are growing there, you see vast waves of people being pulled out of poverty. When that happens, you get new people coming into the sugar market, people who couldn't afford to buy sugar for their tea, or a chocolate bar or a can of Coke."

Raw sugar traded in New York is up 4.9 per cent this year after last year's decline. The March futures contract was down 0.2 per cent at 24.45 cents a pound at 6:46am London time on ICE Futures US in New York.

Economic growth

Sugar usage is also rising due to increasing urbanisation, especially in emerging markets, and econ-omic growth, according to Kingsman. The world economy will expand 3.3 per cent this year and 3.9 per cent next year, the International Monetary Fund forecast in January. China's estimated expansion will be 8.2 per cent and India 7 per cent in 2012, it said.

"As people move to towns, their diets change, they buy more processed foods, they buy foods that have already been made, and that tends to have more sugar," Kingsman said. "The world economy is still growing quite strongly."

Global sugar production will be 176.1 million tons in 2012- 13, up 0.2 per cent from 175.8 million tons in the current season, according to Kingsman. Brazil, the world's largest grower, and Australia are set to have bigger crops, while production will decline in India, Thailand, Russia and the European Union, he said.

Brazil's production

The centre-south of Brazil, the nation's main growing region, will harvest 520 million tons of cane in 2012-13, up from 492 million tons in 2011-12 because of increased plantings, Kingsman forecast. Sugar production in the centre-south will climb 5 per cent to 32.8 million tons, he said. That would be the second biggest output on record, according to data from Brazil's industry group Unica.

"The weather last year was awful and the weather this year is a little bit better," Kingsman said.

"They've had quite a bit of rain so far so we would expect some increase in agricultural yields, which explains the increase in cane. We are also expecting a little bit of an increase in sucrose content."