Asian sugar industry hit by supply surplus, low demand

Asian sugar industry hit by supply surplus, low demand

BANGKOK (Dow Jones): Surplus supply and diminished demand, as
a result of the widespread economic slump in the region, are set
to figure strongly as price influences in the Asian sugar market
next year, according to sugar industry experts.

While the prognosis for sugar prices is bleak for the coming
year, some of the experts, surveyed by Dow Jones Newswires at a
recent industry conference in Phuket, Thailand, were more upbeat
about the sector's longer-term prospects.

Against a backdrop of severe economic recession, the level of
Indonesian demand, whether or not India and China import or
export, and the prospects for the next Thai crop were cited as
the key influences.

Sugar prices have fallen sharply over the past year. The
benchmark raw sugar futures contract on New York's Coffee, Sugar
& Cocoa Exchange closed Thursday at 7.48 cents a pound, down 37%
from 11.80 cents a year ago. The benchmark white sugar contract
on the London International Financial Futures & Options Exchange
closed at US$223.20 a metric ton, down 30% from $320.00 this time
a year ago.

Peter Baron, executive director of the London-based
International Sugar Organization, said the unfolding Asian crisis
will start to bite in 1999 as consumption falls across the
region.

The biggest worry is Indonesia, said Baron. "With imports of
1.3 million tons of sugar in 1996 and 1.9 million tons in 1997",
Indonesia is Asia's largest white sugar importer. It is set to
import 1.3 million tons this year, despite the fact that its own
production was badly hit by the El Nio-induced drought, Baron
said. However, with Indonesia's economy one of the hardest hit in
Asia, Indonesia's import demand is now uncertain.

Indonesia is expected to produce 1.8 million tons of sugar
this year, compared with 2.2 million in 1997. Its consumption,
however, is expected to reach 3.1 million tons.

David Rutledge, chief executive of Australia's Queensland
Sugar Corp., said the greatest impact on sugar demand will come
from those countries whose currencies have suffered the greatest
depreciation.

James Fry, managing director of LMC International Ltd., a
U.K.-based consultancy specializing in commodities, took up this
point. He said that world sugar prices could easily fall,
especially if Brazil is pressured into devaluing the real.

Brazil is the world's second largest sugar producer after
India. A real devaluation would reduce its already cheap prices
in dollar terms, and drag world prices lower.

Fry said that Asia will have too much sugar next year due to
increased production in India and Thailand.

India's sugar production is expected to total 15.5 million
tons in the 1998-99 crop year, up from 12.75 million in 1997-98,
according to S.L. Jain, director general of Indian Sugar Mills
Association.

Should India's predicted bumper crop in 1998-99 enable it to
export rather than import, it would greatly affect prices in the
region, said Guy Hogge, a trader with Louis Dreyfus Sugar.

"If Indian sugar production bounces, the prospects for the
world sugar market remain bleak and a recovery may be delayed
until 1999-2000 crop year," the ISO's Baron said.