Brazilian mills may shift from ethanol to sugar as crude prices fall.

Rising output

Lower crude oil prices curb demand for alternative fuels such as ethanol, which is made from sugarcane in Brazil.

Softening freight rates may also tempt top sugar producers in Brazil to fill in the supply deficit.

Suresh P. Iyengar

Mumbai, Nov. 9 The global sugar deficit in 2008-09 may be smaller than the earlier forecast of 3.90 million tonnes as sliding crude oil prices may encourage many Brazilian mills to produce sugar than diverting the crop for ethanol. Weakening Brazilian real will also increase exporters’ realisation.

According to the International Sugar Organisation (ISO) forecast, the global sugar production may fall by 7.4 mt to 161.6 mt in 2008-09.

Brazil has a sophisticated technology to switch over production between ethanol and sugar according to the demand.

Lower crude oil prices curb demand for alternative fuels such as ethanol, which is made from sugarcane in Brazil. Apart from rise in Brazilian production, the global economic slowdown has impacted the demand leading to sharp drop in prices.

In the international market, sugar prices are on the downtrend since October.

Softening freight rates may also tempt top sugar producers in Brazil to fill in the supply deficit.

Brazil has stepped up exports to Asian countries after shipping costs dropped to $30 a tonne from $39 in October and $85 in September, said an analyst. Brazil exports about 18-19 mt of sugar a year out of a global total of between 45 mt and 50 mt.

LIFFE sugar drops

White sugar prices at London International Financial Futures Exchange (LIFFE) declined in line with other commodities as recession concerns knocked down financial markets.

As the economic mood soured, funds started heading for exits across the board in soft commodities, including sugar, to raise cash to finance redemptions by investors.

On Friday, prices of raw sugar in London fell 6.1 per cent at 11.87 cents a pound, and London December white sugar futures closed down by 18.4, or 5.3 per cent, at $327 per cent.

Indian output falls

In India, sugar production in 2008-09 is estimated to fall 20 per cent to 21.7 mt against 27.3 mt produced in the same period last year.

It is set to slip further by 14 per cent to 18.7 mt in 2009-10 sugar seasons.

In Maharashtra, sugar output is estimated to drop 38 per cent to 5.7 mt (9.2 mt), Uttar Pradesh 14 per cent to 6.5 mt (7.6 mt), Karnataka 2.5 mt (2.8 mt), Tamil Nadu 2 mt (2.5 mt) and Andhra Pradesh 1 mt (1.3 mt).

UP crushing delayed

Crushing was delayed in Uttar Pradesh after the State increased the State advised prices (SAP) to Rs 140 a quintal from Rs 125 a quintal last year.

If the mills have to pay such a high SAP, retail sugar prices have to rise by Rs 5-25 a kg, said a sugar company official.

Prices in India may remain almost stable as the Government controls it by altering supplies every month. The Government has released 1.5 mt of non-levy sugar against 1.3 mt released in the same period last year. Non-levy, or free sale sugar, is sold by millers in the open market, but the quantity each mill can sell is fixed by the Government.

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Slowdown in sugar exports likely in 2008-09

(This article was published in the Business Line print edition dated November 10, 2008)
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