Upward revisions in 2013/14 supply forecasts from the Asian producers would send a bearish message to the global sugar market, which is now trading near 4-1/2-month highs, boosted by chart-based buying and concerns over rains in top grower Brazil.
The International Sugar Organization (ISO) and analysts such as Datagro, Kingsman and Czarnikow which in recent weeks have cut their surplus forecasts sharply, may have to revise up their numbers as output is set to exceed earlier expectations in producers such as India, Thailand, the Philippines and Pakistan.
"It looks as though the surplus forecast for 2013/14 will be higher than we had expected at the end of August," said Sergey Gudoshnikov, a senior economist at the London-based ISO. "The surplus for 2012/13 will still be much bigger than for 2013/14."
The ISO has said it expected the sugar surplus to slide to 4.5 million tonnes in 2013/2014 from 10.3 million tonnes in 2012/2013.
"The impact of the Asian monsoon isn't being given much recognition in the market - it's the missing part of the picture," said Tom McNeill, director at analyst Green Pool in Brisbane, who pegged the 2013/14 surplus at 4.66 million tonnes.
"While there are sizeable concerns raised regarding rain impact on the centre-south Brazil harvest, we think that potential additions to Asian production and exports more than balance that out."
A London-based sugar broker said concerns over Brazil's rains were overdone, as ample rains were normal in this period.
Also, cane is tough, and likely to withstand heavy downpours, and growers can extend the harvest if required.
"There doesn't have to be a short tail (end) of the harvest," he said.
INDIA
Indian sugar production is expected to be stronger than previously thought due to a favourable monsoon.
India, the world's largest sugar consumer and number 2 producer after Brazil, may export as much as 3 million tonnes in the next crop year to get rid of excess supply.
India usually ships sugar to the Middle East, Sri Lanka and some African countries, but it will have to compete with Thailand, whose output will reach a record 11 million tonnes in 2013/14.
"We are heading for surplus production for the fourth year in a row and we estimate our production at 24.5-25.0 million tonnes in 2013/14, leaving mills with huge stocks," Vinay Kumar, managing director of India's National Federation of Cooperative Sugar Factories Ltd, said.
"Massive stocks will force India to export at least 2-3 million tonnes to help arrest a freefall in local prices and improve the financial health of companies which have been struggling and find it difficult to pay cane growers," he added.
Kumar said mills are now saddled with carryover stocks of 9 million tonnes which will rise to more than 10 million tonnes if exports do not pick up.
A senior Western analyst said the expected surge of exports from India in 2013/14 would limit the upside in sugar prices.
"I think it is a bearish signal," the analyst said.
China will see an increase in output in the main growing region of Guangxi because of ample rains, but the country's insatiable demand is likely to absorb any excess supply.
"We think consumption will be relatively balanced with production because this year's consumption is also relatively strong," Tao Qianjun, an analyst at Huatai Futures, said.
"We estimate the cane output in Guangxi province to be 69 million tonnes, up from 67 million tonnes last year."
Chinese sugar output will be little changed year-on-year at 14.2 million tonnes in 2013/14, the ISO said.
Elsewhere in Asia, production in the Philippines is expected to be little changed in 2013/14, holding up well despite adverse weather, and will incorporate an exportable surplus.
"We are sticking to our 2013/14 forecast of 2.45 million tonnes for now. It's a good estimate taking into account the weather, including the two typhoons that hit us recently," said Butch Alisla of the Sugar Regulatory Administration.
Despite the expectations of higher output in several Asian producers, heavy rains hit domestic output in Indonesia, triggering expectations of sharply higher imports this year to meet rising demand. (Reuters)
