Brazil, India woes threaten tenuous sugar market recovery

Fall in real prices could pin sugar prices at low levels

Brazil's credit downgrade and the possibility India will export some 4 million tonne of sugar could keep the global sugar industry mired in excess supplies, threatening a fragile recovery expected to begin in 2015-16, industry experts said.

The possibility that millers in top grower and producer Brazil will continue to pump out large supplies of the sweetener at low prices may grow if the real continues its slide after Standard & Poor's cut Brazil's sovereign credit to "junk" status, analysts and traders said at an industry conference on Thursday.

That could keep sugar prices pinned at already low levels, especially if Brazil's real continues its slide to 4 per US dollar, said Jonathan Kingsman, a long-time sugar industry consultant.

"It's going to be very tough for other producers," he said.

The real has fallen to a 13-year low of 3.9 per US dollar.

The devaluation of the real has reined in costs of production for Brazil's millers and kept sugar prices traded in the local currency relatively steady, even as world raw sugar prices touched a 7-year low of 10.13 cents per pound last month.

That has kept Brazil's debt-ridden milling industry crushing hefty amounts of cane into sugar and ethanol, prompting sugar industry experts to defer earlier expectations for when the world will see a supply deficit to the 2015-16 year that begins Oct. 1.

Producers in Central America, who have benefited from relatively high domestic prices, are beginning to feel the effects of the currency dynamics, said Michael Levitz, managing director at ED&F Man, one of the world's largest sugar merchants.

Government policies too have called into question how quickly the world will work through inventories, particularly as India considers a measure that will require mills to export sugar to help local farmers.

The projected world supply deficit could be "wiped out if we push out 4 million tonnes" of exports, said Kiran Wadhwana of brokerage Comdex India Ltd in New Delhi during a presentation at Thursday's conference.

Wadhwana estimated total production in India, which has shifted to a net exporter in recent years, down year-over-year at about 27 million tonne.

The comments on currency factors and policy questions underscore the uncertainty that has plagued a sugar industry locked in a bear market for the past five years.

The benchmark raw sugar contract on ICE Futures US closed down 0.9% at 11.33 cents per lb on Thursday.