London, 11 August 2011

Demand for sugar is being led by Asia, a trend that has recently become apparent in the physical market. 2012 will see Russia’s import needs clearly surpassed by Indonesia, China, Malaysia and a number of the large refineries in the Middle East, according to Czarnikow Group, one of the most respected names in agricultural commodity markets.

"We are consequently seeing a decline in the importance of Brazil to Black Sea trade as instead the market pivots to a West/East flow. Almost 75% of global raw sugar demand now comes from the Middle East and Asia – a similar volume to that supplied by Brazil to the world market. Looking forward, Asia is set to remain at the centre of demand growth in the sugar market and hence we expect to see it exert a greater pull on Brazilian availability given the limited supply growth within the region," say Czarnikow Group, one of the most respected names in agricultural commodity markets

Rising Asian demand

- Asia and the Middle East together are importing an increasing volume of Brazilian sugar, having taken 60% of Brazilian exports already this season.

- Increasing demand is being driven not only by population growth, but also by urbanisation and rising incomes, which allow for increased consumption of processed foods and soft drinks.

- Domestic production across the region has rarely delivered comparable growth; the 2007/08 season remains the year of record Asian sugar production.

The result is that the once seasonal Asian deficit has become structural.

China

- Rising demand has not been met by production, owing to land shifting from cane to better economic uses, poor weather and lack of expansion.

- As a result the government has steadily liquidated stocks. However, domestic prices have more than doubled in just two years.

- Chinese imports have risen rapidly, from 600k tonnes in 2007/2008 to an expected 2m in 2010/2011, a total which is set to be exceeded in 2011/12.

- Shipments in Q3 2011 are already almost double what they were last year.

Indonesia

- Indonesian demand for food commodities is increasing and the country has emerged as a major large-scale raw sugar importer.

- Imports are of lower quality than Brazilian VHP and other origins are preferred. Despite this there are now significant shipments from Brazil.

- We expect further growth in consumption and Indonesia will remain a pull on supply from the Western Hemisphere, in particular Brazil.

Malaysia

- Malaysia depends on imports, producing only 20,000 tonnes of sugar domestically.

- With the latest government long-term contract due to expire at the end of the year, Malaysia could need to compete for spot raw sugars in early 2012.

Conclusion

Over the past twenty years Asian countries have been behind a doubling of global trade in raw sugar and China is now reaching ahead of Russia in terms of global demand for sugar.

Unlike Asian countries, few Middle Eastern countries are able to grow sugar and as a consequence their rise in demand has been directly transferred to the world market.

With the market dependant on Brazil for supply, the current crop problems in CS Brazil are likely to continue to expose the fragility of the world market.

Ends --

Czarnikow operates from a head office in London and a network of 10 regional offices to service clients and customers globally.