The Hindu Business Line : ‘India holds key to global sugar prices’

“India currently owns much of the global stocks accumulated since 2005-06 (October-September). If there is not a prompt increase in export offers from India in the face of rallying prices in the first half of 2008, expectations of global export availability for 2008 will be revised downwards, providing fundamental support for any rally,” the report said.

A pruning of India’s projected crop this season to September helped fuel the prices rally last month, though the report said it was not clear how much impact the revision would have on the market.

“As a result, a modest decline in the projected surplus and stocks build-up in 2008 is not, on its own, likely to have much effect on the availability of Indian sugar for export over the next year,” the report said. However, the recent increase in domestic market sales price had made millers cautious on entering new export deals.

Global prices

In January, mills in Maharashtra were able to sell sugar at Rs 12,500-13,000 a tonne in the domestic market against Rs 11,300-11,800 in November.

The latest increase in global prices was also prompting millers to be delay negotiating export contracts and not lock themselves into the existing rates to cover against any upside risk. “Some millers are even trying to wriggle out from delivering against past contracts, though this may invite legal action,” the report said.

Referring to the controversy over higher State advice price fixed by the Uttar Pradesh Government, it said a ruling by the Supreme Court either way could dent the relations between the growers and millers.

Stating that the speed and degree with which India makes more sugar available in the export market would influence the global price rally, the report said a limited response could certainly help to support prices until at least 2008.

Dwelling on supply, demand, stocks and export availability, Rabo said there was little justification for global sugar prices to be substantially higher this year than they were last year. Raw sugar prices may average 12.9 cents a pound in 2009, it said.

With almost all investment funds going long on sugar, their resolve would be tested by market developments, first by expiry of March 2008 raw sugar futures contract and later when Brazil new crop campaign gathers steam. That could lead to volatility in the market, it said.