Sugar surplus shrinks but industry's outlook still tough

[DUBAI] Large global sugar stocks built up during years of oversupply are finally beginning to shrink as low prices curb production and consumption edges higher but the industry's outlook remains challenging, participants at a major conference said on Sunday.

Data provider Platts Kingsman, which hosts the annual event which is attended by several hundred producers, traders and refiners, forecast there would be a global sugar deficit of 5.2 million tonnes in 2015/16 (October/September).

The deficit is significantly wider than the modest 122,000 tonne shortfall seen for 2014/15, which followed several seasons when supplies exceeded demand. "The large surplus that the world has been carrying over the last four years is finally waning," Platts Kingsman said.

The outlook for sugar refiners remains difficult, however, with the premium for refined over raw sugar, a measure of their profitability, set to remain around US$50 to US$60 a tonne for the rest of 2015, one major Dubai-based refiner said. "Around 70 per cent of Brazilian industry is bankrupt or about to go bankrupt and government is helping them to say alive," Jamal Al Ghurair, managing director of Dubai's Al Khaleej Refinery, said. "I think this will go for refineries around the world, sugar refineries cannot sustain a US$60 white raw premium and say we can do business for a long time. Many countries are facing the same problem with their sugar industry."

Abinash Verma, Director General of the Indian Sugar Mills Association, said he hoped the country's government could approve incentives to help the world's number two producer to export surplus supplies this week. "It is almost through so we expect and we pray it will happen this week," he told Reuters.

Subsidies assisted Indian raw sugar exports last year and mills have been waiting for news of this year's subsidy since the start of the crushing season in October.

Benchmark global raw sugar prices ended last week at 14.79 US cents a lb having fallen by more than half from a 30-year peak of 36.08 US cents a lb set in Feb 2011.

The rise in prices earlier this decade triggered a major expansion in production which led to a rapid build-up stocks.

Production has begun to fall in response to low prices while there has also been a slow but steady rise in consumption.

Sugar consumption is expected to grow to 200 million tonnes in 2024 from 175 million tonnes in 2014 with most of the increase in Asia and Africa, Alexandre Luneau, member of the executive committee of French sugar maker Tereos told the conference.

REUTERS