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.