What's the outlook for Sugar? Experts opine

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One sector that has had it really rough from a market perspective, is sugar. The stocks are not recovering; they are well off the highs of the year. People generally seem a bit worried about what is happening with the government policy on the export front.

Dhruv M Sawhaney, CMD at Triveni Engineering and Industries  and Jonathan Kingsman, MD at Societe J Kingsman give a clearer perspective on the ethanol story and where international prices of sugar are headed.

On a negative note, Sawhaney doesn't see sugar prices recovering for the next four quarters. He says that sugar prices may dip slightly by March, and the revival in sugar prices is likely only by 2007-end.

Jonathan Kingsman says that the ethanol demand may support global sugar prices. He adds that international sugar prices are seen at 11-12 cents/lb in the near future.

Excerpts from CNBC-TV18's exclusive interview with Dhruv M Sawhaney & Jonathan Kingsman:

Q: What exactly is your expectation of how this pricing trend will pan out because people seem worried that the next four quarters will not see any meaningful gains or improvements in sugar pricing?

Sawhaney: Right now we are disappointed with the government's delay in the lifting of the export ban; the markets have reacted to that. We are going to have a surplus production in India with about 23 million tonne of production. So there is no reason for the government not to be allowing exports, especially of sugar that come in the earlier import scheme.

I do not see prices right now in Delhi and in the rest of the country, which are lower than what they were last year. They will slightly dip towards March. The NCDEX (National Commodity & Derivatives Exchange Ltd) is showing a decrease for today's prices. So for the next four quarters, I do not see prices recovering with the production surplus that we are going to have.

Exports of a couple of million tonnes is extremely crucial for us to be able to have a reasonable sugar price. And that reasonable sugar price is essential for cane prices to be paid so that we do not go into another cycle.

Q: Does this match your expectations for the international sugar price cycle as well? Are prices looking soft internationally?

Kingsman: Yes, they are at the moment. But in the longer term we are very optimistic on prices and the industry in generally. We think that the world market overshot on the upside. We were expecting prices to go up to 14 cents per pound, but they went up to nearly 20 cents per pound. And we imagine that they are going to probably overshoot a little bit on the downside.

However, we would view it as a major buying opportunity for industrial use.  We are anticipating prices to go down in the middle of next year with the Brazilian harvest, but we do not expect them to stay down for very long.

We view that as a major buying opportunity and we expect a growing interest in bio-fuels and particularly ethanol to provide a sponge behind the world market and to absorb some of that extra sucrose. Therefore, we are positive on world prices into the future. But obviously, you are going to get some overshoots on the upside and on the downside in the short-term.

Q: For the next three-four months, how do you map the demand-supply situation and what sort of band do you think sugar might trade at?

Kingsman: For the next few months, in the world market, we are quite positive. We think that prices may dip down to 10.66 cents a pound on the March contract and then quickly recover.

Our trade flow analysis shows that if the market is fairly well balanced for the next two-three quarters when the Brazilian harvest comes on, we expect the market to stay stable.

Longer term, remember that all commodity prices should go to the marginal cost of production for one of the most efficient producers, and that is currently Brazil. So we expect prices to stay to roundabout 11-12 cents a pound on an average for the future, with big support coming from the ethanol sector.  

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