The world price of raw sugar, among the worst performing commodities this year, may fall further as oversupply will probably persist until 2009, said Peter Baron, executive director of the International Sugar Organization (ISO), a London-based inter-governmental organization that analyses and providesstatistics on the world sugar market.
“I have doubts that the price has hit a bottom,” he said in an interview at a sugar conference in Bali, Indonesia. “I don’t see a real rebalancing before 18-24 months from now.”
The price of sugar has slumped 20% this year as supply led by India outpaced demand. The sugar market is headed for a production surplus of 10.8 million tonnes (mt) in the year to September 2008, with record output of 169.6mt and consumption of 158.8mt, the ISO said on 24 August.
“Many countries are concerned about what India has been doing,” Baron said on Tuesday. Exports by India, the world’s biggest producer after Brazil, and its incentives such as freight subsidies will contribute to the surplus, he said.
Jayantilal Patel, president of India’s National Federation of Cooperative Sugar Factories, said the incentives may not necessarily spur exports as long as prices stay low.
“The price is not favourable now,” Patel said in an interview in Bali. “India is not very keen on exporting.”
India will reimburse 4% of the value of raw sugar exported to traders under a “duty-drawback plan”, the commerce ministry said this month. This is in addition to a freight subsidy of as much as $35 (Rs1,442) a tonne given to exporters to encourage overseas sales.
“Indian supply is one of the very big reasons” for declining prices, said Sandeep Bhura, director of the Delhi-based India Trading Co. “It’s better to wait another month” before buying sugar, he said. India may export 4.5mt of raw and white sugar in the crop year starting October, up from around 2.5mt this year, Bhura added.
Increasing use of sugar cane for ethanol may curb the decline in prices, said Baron.
As much as 54% of the world’s sugar cane is used to make ethanol which serves as a substitute for petrol. That’s up from 50% to 51% last year, he added. Raw sugar for October delivery fell 0.01 cent to 9.45 cents a pound on the New York Board of Trade on Tuesday.Bloomberg