Sugar surplus to touch one mt in 2008-09

The sugar market will post a 1 million-metric ton surplus in the 2008-09 season, extending two consecutive years of oversupply, said Tom McNeill, director of Societe Kingsman SA in Australia.

Sugar output will total 163.86 million tons in the season ending September 2009, led by a 5.9 per cent increase from Brazil, the world's biggest producer, McNeill said.

Consumption growth will slow to 2.7 percent to 162.87 million tons, from 3.6 percent the previous season, he said.

``Prices at the minute are relatively good for producers,'' McNeill said on Tuesday. ``We should see producers respond to the current price. The market is giving a very clear signal that it wants more production next year.''

Growers from India to Brazil boosted output after prices rose to a 25-year high in 2006, resulting in a 9.4 million-ton surplus this season, according to Lausanne, Switzerland-based Kingsman.

Raw sugar declined 7.9 percent last year, making it the fourth-worst performer on the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials. The index gained 22 percent in the period.

Raw sugar futures for March delivery fell 0.03 cent, or 0.2 percent, to 12.14 cents a pound on ICE Futures U.S. as of 8:16 a.m. London time. Prices have gained 12 percent since the beginning of the year.

India, the world's second-biggest sugar producer, is forecast to cut production 16 percent to 25 million tons next season, McNeill said.

India will hold the bulk of the world's sugar stockpiles, with inventories forecast to peak at 20 million tons over the next months and start unwinding by December, McNeill said.

When inventories are high, ``prices usually fall, giving a signal to growers to stop producing, but that's not happening this time,'' McNeill said. Domestic sugar prices have been gaining in India, he said.