The Hindu Business Line : World sugar prices to stay soft: FAO

Current prospects
World sugar output for 2006-07 is forecast at a new high of 155.5 million tonnes.
Steady price declines since July 2006 have been in response to an emerging surplus supply situation.

Mumbai , Dec. 11

After spurting to a 25-year high (US cents 18 per pound) early this year in the wake of supply deficit running for three years in a row, international sugar prices have witnessed a steep correction in recent months as the market goes into a surplus in 2006-07.

World sugar output for 2006-07 is forecast at a new high of 155.5 million tonnes (raw value), up by a more-than-modest 6.4 mt from the previous year' s 149.1 mt, according to Food and Agriculture Organisation (FAO). The United Nations agency has placed world sugar consumption for the year at 152.1 mt (149.9 mt), disclosing a surplus over 3 mt.

Surplus supply

Steady price declines since July 2006 have been in response to an emerging surplus supply situation, lower oil prices, and replenished sugar and ethanol stocks in Brazil, the largest sugar producing nation, the FAO said, adding that the price outlook for 2006-07 has been dampened by record output in major producing countries, slower than anticipated consumption growth and forecast global surplus.

Prices should continue to fluctuate around its longer-term trend value reflected in the ISA monthly average for September and October, US cents 12.08 and 11.64 per pound, respectively, a report added.

Suggesting that higher prices drive expansion and renovation off sugar industries in Africa and Asia, the FAO pointed out that output in India may reach a new record of 24 mt, reflecting expanded area planted to sugarcane in response to higher domestic prices and favourable weather patterns that raised sugar content, particularly in southern and central India. Several sugar industry groups are expanding milling capacity.

Decline in Europe

On the other hand, sugar production in Europe (EU-25) is forecast to decline by a whopping 5 mt. This is attributable to EU sugar policy reform that began around the middle of 2006.

As for world consumption, Asia will continue to drive growth, the FAO said, adding that in India, increased incomes and government actions to contain domestic price increases are expected to help achieve consumption of nearly 21 mt in 2006-07.

Domestic prices had reached a record high in May 2006 restraining consumption and prompting the government to invoke the Essential Commodities Act to control hoarding, ban exports and allow duty-free imports of sugar, the report noted.

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