Sugar output may miss forecast, ease global glut

Sugar output may miss forecast, ease global glut

Mumbai: India, the world’s second biggest producer of sugar, may make less of the sweetener than forecast by traders and millers because of delays in crushing cane, easing a glut that has slashed global prices.

Output may be 28.3 million tonnes (mt) in the year to 30 September, said Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories Ltd. That is less than the 30mt the group had predicted in July and a 33mt estimate from the International Sugar Organization (ISO) in London.

A global glut has slashed refined sugar prices 35% in 18 months, making the sweetener the worst performing agricultural commodity over that period. World output may exceed demand by 11.1mt this year, led by a record output in India, ISO has said.

“A delay in crushing in Maharashtra and Uttar Pradesh has caused production to drop 30% in the two months" ended November, Kumar said. “Production is unlikely to be higher than last year. We may see sugar prices moving up from June." Output was about 28mt in the year ended September, he said.

Cane harvests in Maharashtra were delayed two weeks by rainfall and mills in Uttar Pradesh refused to process the crop because of a price dispute with a provincial government.

Uttar Pradesh in October ordered sugar makers in the state to buy sugar cane at above-market prices. The state asked millers, including Bajaj Hindusthan Ltd and Balrampur Chini Mills Ltd, to pay growers as much as Rs130 for 100kg. The price was cut to Rs110 by a court in the state after mills challenged the directive.

Balrampur Chini, the nation’s second largest producer, last month said it expects to lose Rs3.50 on every kg of sugar output in the state because of the directive. The company reported its second straight quarterly loss for the three months ended 30 September. Bajaj, which posted a loss in the June quarter, is yet to announce earnings for the most recent period.

“Indian producers are still grappling with huge stocks and rising cost of production," said Vikram Suryavanshi, an analyst at Karvy Stock Broking Ltd.

Refined or white sugar traded on London’s Euronext.liffe has slumped since reaching a record $497 (Rs19,630) a tonne in May last year as the world’s biggest producers increased output and widened a global glut. White sugar futures for March delivery rose 0.8% to $290.30 a tonne on Wednesday in London.

India’s sugar production may decline to 22mt in the year to September 2009 as farmers switch to more profitable crops such as wheat and oilseeds, National Federation’s Kumar said.

The forecast echoes that of Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd, India’s biggest refiner. About one-fifth of the area under sugar cane cultivation may shift to wheat in the year starting October 2008, he had said on 23 October.

Domestic sugar prices have declined 25% in the past year and wheat rose to a record in September. BLOOMBERG

Pratik Parija in New Delhi contributed to this story.