Sugar surplus forecasts shrink on China to Indonesia demand

Published online: Sep 12, 2013
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The global sugar surpluses for this year and the next are narrowing as rising population means accelerating demand in developing nations from China to Indonesia, the world's largest raw sugar importer.

Sugar production will outstrip demand by 2 million metric tons in the 2013-14 season that starts in October in most countries, according to Czarnikow Group Ltd., which has clients in 83 countries. That's down from a previous forecast of 3.9 million tons. The surplus will shrink as output falls 2.2 percent and consumption advances 2.3 percent in 2013 and 2 percent next year, the London-based company estimated today.

Production for 2012-13 will be 183 million with demand at 173 million tons, leaving a record surplus, the International Sugar Organization says. Prices in New York fell 15 percent this year. Consumption may be about 3 million tons more than anticipated when the 2012-13 season began, said Robin Shaw, an analyst at Marex Spectron Group. Indonesia's imports will double this year and China's demand will be a record.

"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 followed 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 up 0.8 percent at 16.51 cents a pound today on ICE Futures U.S., down from the 30-year high of 36.08 cents a pound in February 2011. The global population will increase by 33 percent to 9.6 billion people by 2050, led by growth in developing regions, the United Nations estimates. The world will need 70 percent more food by 2050, says the UN's Food & Agriculture Organization in Rome.

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. Chinese raw sugar imports will rise to a record 4 million tons in 2012-13 from 3.6 million tons a year earlier, estimates Czarnikow, which traded 2.4 million tons of the raw sweetener last year and 800,000 tons of the white, or refined, variety.

Pocket money

"When we look at what's been happening across commodity markets, with prices falling, food prices falling, the money in the pocket of consumers is stretching further," said Toby Cohen, a director at Czarnikow. "When things are getting more affordable, you can be more generous with yourself. Quite clearly, in a lot of the fast-growing Asian economies, the urbanization trend is really important in terms of driving consumption. The big growth volume for most consumer-goods companies come from the Asian market."

Chinese imports are climbing partly 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 prices have dropped, Marex Spectron's Shaw said. Sugar demand will gain as it's now more competitive with corn sweeteners, Czarnikow's Cohen said by phone today.

"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."

Sugar buyers

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. China, the United Arab Emirates, Algeria, Bangladesh and Nigeria were the top five destinations for Brazilian sugar in the period.

"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."

Global sugar output will fall to 181.8 million tons in 2013-14 from 185.8 million tons a year earlier, Czarnikow said. Consumption will be 175.2 million tons this year and 178.8 million tons in 2014, Stephen Geldart, a senior analyst at the company, said by phone from London today. 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.