Australia sees Asian sugar market staying bearish

Australia sees Asian sugar market staying bearish

PHUKET, Thailand (Reuters): Australia, embracing a bearish
view of Asian sugar markets, says demand will be hit by the
current economic downturn and currency devaluations.

To make matters worse, a flow of Brazilian sugar to the region
will keep markets edgy, David Rutledge, chief executive of
Queensland Sugar Corp. said on Thursday.

He also told an Asia International Sugar Conference at this
southern resort island that with Asian economic growth grinding
to a halt, consequences for the world sugar economy were dire.

Major movers and shakers in the region as far as sugar
consumption is concerned include Indonesia, China, Japan,
Malaysia and South Korea.

As for Indonesia, Rutledge said its consumption could be
reduced by 10 percent this year due to economic disruptions.

However, with deregulation of sugar imports announced last
week, Indonesia may import more than it requires in the short run
as traders seek to take advantage of numerous market aberrations
that could occur.

"Clearly, the greatest disruption has been in Indonesia. It
appears at this stage that in the current year Indonesia's
consumption will be reduced by at least 10 percent. Imports,
however, may not fall to this extent because of the impact of the
drought on the domestic crop," he said.

"With last week's announcement of a complete deregulation of
Indonesian sugar imports there is, indeed, a real possibility
that, perversely, Indonesia may now import more than it requires
in the short run," he added.

Farouk Bakrie, chairman of Indonesia Sugar Association, told
Reuters on Thursday that Indonesia would need to import around
one million tons of whites between now and the end of 1998.

Malaysia's sugar consumption is also expected to decline by
around 5 percent to 950,000 tons in 1998 as the government
increased domestic prices by 21 percent in February. In addition,
it has been actively encouraging Malaysians, the region's largest
consumers at 48 kg per head, to use less sugar, Rutledge said.

"It is regrettable that the anti-sugar campaign in Malaysia
has been cast as a health issue, contrary to current scientific
evidence, when it seems to me that in reality, it is an issue of
economics," he said.

South Korea added to the gloomy picture, Rutledge said.
"For Korea, the economic downturn has seen the expected shift
away from processed food and a significant drop in sugar
consumption," he said.

"Our current thinking is that consumption in Korea will be
around 10 percent or around 100,000 tons lower this year than
last. Looking ahead, growth in sugar consumption will be tied to
growth in Korea's economy more generally," he said.

China, a major player in Asia, is also suffering from a severe
economic downturn although it is not in the full glare of the
world's financial markets. If the yuan is devalued, as some
analysts expect, the situation could worsen, he said.

"I think it unlikely that the Chinese authorities will be able
to defer forever a devaluation of the yuan, notwithstanding the
perceived political difficulties of such an action," he said.

The economic slowdown has affected consumption and sugar mills
are being asked to square an economic circle by paying farmers a
regulated cane price while selling their own product into the
unregulated and currently depressed domestic sugar market. This
caused imports to be minimal, he said.

The sugar situation in China is also complicated by an
extraordinarily heavy intake of saccharine.

"But I remain of the view that in the long run the relative
offtake of these sweeteners will move in sugar's favor," Rutledge
added.

Japan was an enigma. However, its economic recovery would be
essential to get the region out of recession, he said.

While demand in the region is bearish, major providers of
sugar in Asia -- Thailand and Australia -- were also hit hard by
an exodus of sugar from Brazil. Rutledge said he expected to see
aggressive offers of sugar from Brazil, which has a lot of export
availability, to continue through the second half of this year.

"There was a time, not so distant in the past, where one could
correctly say that exportable surpluses in Brazil impacted the
Asian sugar economy only to the extent of their impact on world
prices generally, as measured by the No. 11 futures contract in
New York. This is no longer the case," he said.

"The marked change in the structure of the freight market in
the past year, together with the aggressive disposal programs of
sugar trade houses with Brazilian sugars on their books, has
resulted in Brazil becoming the benchmark origin for determining
values in at least some, if not all, Asian markets," he said.