London, 8 January 2010

India's domestic sugar surplus/deficit is the main influence on the global sugar market balance. India is heading for its second consecutive sharp production shortfall, creating huge pressure on the world's exportable sugar supplies via its large import requirements.

Droughts during the key monsoon planting times and delays to the crushing season in India's key sugar producing states, has lead to a production decline of 3% y/y in the first three months of the Oct/Sep 2009/10 season. As crushing picks up over the next few weeks, could some of this loss be overcome, or will large amounts of cane get diverted to gur instead of sugar?

Sugar prices have maintained the bullish momentum that we saw developing at the tail end of 2009. With the Brazilian intercrop period now firmly in place (when little or no sugar gets crushed ahead of the new season commencing March), the market has focused on the continued demand side pressures, particularly, the emergence of new import announcements from various countries.

Indonesia has issued permits for sugar refiners to import 1.06mt of raw sugar during the first half of 2010. The Egyptian trade ministry will import 1mt of raw sugar to meet demand in the second half of 2010 and boost reserves for early-2011. Insufficient refining capacity and the perception that not enough raw sugar is becoming available at a fast enough rate to get refined and delivered to end customers is continuing to support white sugar premiums. As increasingly, more importers switch to white sugar over raws, London refined sugar prices surged to highs of US$733/tonne this week.

Ends --

Kona Haque & Alexander Bos, Macquarie