Sugar exports may beat forecasts

Higher shipments may help reduce domestic market glut, bring down losses

India may export more sugar than previously expected as mills seek to benefit from a rally in global prices.

"Mills have sold 1.6 million tonnes of sugar abroad since the beginning of October and may sell another 1.4 million tonnes by September," S L Jain, director general of Indian Sugar Mills Association, said. Last month, the trade body forecast exports for the sugar year at 2.5 million tonnes.

Higher shipments may help reduce the domestic glut and narrow losses at Bajaj Hindusthan and Balrampur Chini Mills, India's biggest millers. Sugar, the fourth-worst performing commodity in 2007, "may gain the most this year, alongside cotton and coffee," investor Jim Rogers, who predicted the start of the commodities rally in 1999, said.

"The recent increase in prices is certainly good news for exporters," Jain said. "I'm bullish and expect raw sugar to gain another two cents a pound in the foreseeable future."

Sugar futures traded in New York have risen 17 per cent since December 1 on speculation that record crude oil prices would boost demand for fuel made from cane.

The contract for March delivery reached 11.78 cents a pound on January 8, the highest since December 29, 2006. The futures fell 0.5 per cent to 11.39 cents yesterday.

Hedge-fund managers and other large speculators increased their net-long positions in New York sugar futures in the week ended January 1, according to the US Commodity Futures Trading Commission data. Indices such as the Dow Jones AIG Commodity Index are giving greater weightage to sugar in 2008 after prices fell for a second straight year.

Sugar was the fourth-worst performer last year in the UBS Bloomberg Constant Maturity Commodity Index of 26 commodities, declining 7.9 per cent.

"You have index and hedge funds beginning to chase sugar," Jain said. "All the factors, including record crude oil prices, are in favour of a further rise in prices."

Morgan Stanley on January 7 raised its average-price estimate to 11.1 cents for the year ending September 30, from a forecast of 9.2 cents. Sugar will rise over the next three years, averaging 17.1 cents a pound in the year to September 2011, up from an estimate of 12.7 cents, the brokerage said.

"Things are certainly looking up for sugar mills with the recovery in prices," said Prakash Naiknavare, managing director of the Maharashtra State Cooperative Sugar Factories Federation, a group of 190 producers. "There's good demand for Indian sugar from importers.''

The country may produce 28 million tonnes of the sweetener in the year ending September 30, less than the 31 million tonnes forecast by the association last month, Jain said. Production dropped to 6 million tonnes in the December quarter from 7.34 million tonnes a year earlier, according to the National Federation.

Brazil is the world's biggest producer and exporter of the sweetener.