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Sugar Prices in Uncharted Waters: Al Khaleej

DUBAI — The skyrocketing price of sugar is heading for “uncharted” territory, a top industry executive said, amid mounting concerns over shortfalls in supply from Brazil and India, the two biggest sugar-producing countries.

Cyrus Raja, general manager of Dubai-based Al Khaleej Sugars, the world’s largest sugar refinery, said on Wednesday that the price of the sweetener could move either way but that “the potential is more for upside.” The price of sugar has already been trading at multi-year highs due to an expected global supply shortfall for a second consecutive year.

An unusually wet June and July in Brazil have hampered cane harvesting and crushing in the world’s largest producer of sugar cane. According to Unica, Brazil’s sugar and ethanol industry association, output in the Center-South region, the world’s largest cane-producing area, dropped by 5 per cent during July 1-15 compared with the same period last year. In addition, more than half of the country’s sugar cane goes towards the manufacture of ethanol, a key bio-fuel.

India faces the opposite problem. The world’s biggest consumer of sugar might see a domestic production shortfall due to weak monsoon rains. Almost 170 of India’s total of 626 districts are facing a drought. Raja said that it is very difficult to gauge India’s import requirements. “Numbers are a problem… There are no reliable statistics,” he said. He estimates that India’s production this year will be 14.5 million tonnes compared to the country’s demand for 22 million tonnes. While India has contracted this year to import 2.5 million tonnes of raw sugar, the key piece of the puzzle remains the total inventories held by both state-owned and private firms — a number that’s hard to pin down.

A recent Reuters poll estimated that India might import anywhere from 2.8 to 5.0 million tonnes in 2009-2010. The sugar marketing season in India runs from October to September.

The price of refined white sugar for October delivery traded on Wednesday at $557 per tonne in London, a whopping 60 per cent increase from where the price was at the beginning of the year. Al Khaleej has received many enquiries from India about possible purchases, but buyers’ interest has yet to translate into actual sales, Raja said.

“We are seeing a lot of enquiries from Indian buyers,” he said. “But not much transaction as price in India is below the international rates.”

On Wednesday, India’s ex-factory price of white sugar, also known as Medium Grain 30 or M 30, hovered around Rs30 (Dh2.35) per kilogramme, while at current international rates, the landing cost of imported sugar in Mumbai will be over Rs32 (Dh2.45) per kilogramme. “Prices in India have also increased, but they are still below the international rates,” he said.

Al Khaleej has been operating at 100 per cent capacity since June, due to robust demand from across the Middle East. That marks a sharp turnaround for the company, which was running at 60 per cent of its capacity in the first quarter of this year, Raja said.

The company can refine 5,000 tonnes of white sugar a day at its refining facilities in Dubai. It imports most of its raw sugar from Brazil. In June, the company said that it had sold several thousand tonnes of white and raw sugar to India, without disclosing the quantity. It also said that it had sold 100,000 tonnes to Pakistan and50,000 tonnes to Iraq during the last two months.

aruna@khaleejtimes.com