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.