Sugar demand to top output this year

No matter what happens in the global economy, sugar demand is about to top production for the first time since 2006, the year prices reached a 24-year peak.

India, the second-biggest grower, will reduce supplies 16 per cent next year, shifting to more profitable crops. Brazil, the largest producer, expects to use 57 per cent of its cane for ethanol this year, up from 54 per cent. Refiners in Europe will process 15 per cent less because a 2004 trade ruling bars growers from exporting surpluses.

“The fundamentals for next year are better than in the last 12 months and are the best for market values in the last three seasons,’’ said Sergey Gudoshnikov, a senior economist for the London-based International Sugar Organization, which represents countries producing 82 per cent of the world’s sugar.

The shortfall may make sugar one of the only commodities to continue rallying even as the slowing global economy reduces demand for raw materials from aluminum to oil. Sugar use isn’t affected by price swings in developed countries, while people are eating more sweeteners in China and India, the largest consumer, according to London-based ED&F Man Holdings.

Sugar on ICE Futures US in New York may jump 28 per cent to 18 cents a pound next year from 14.06 cents on September 12, said analyst Jonathan Kingsman in Lausanne, Switzerland, whose firm Kingsman SA advises banks, hedge funds and Fortune 500 companies on commodity purchases.

Kona Haque, a commodity strategist at Macquarie Bank in London, said the price may reach 20 cents, and Jean Bourlot, a managing director and head of agricultural trading at Morgan Stanley, said it may double in 18 months. The sweetener traded at 14 cents on Tuesday in New York.

The S&P GSCI Index of 24 commodities, after six straight years of gains, plunged 28 per cent from a record on July 3 and slipped into a bear market as global economic growth slowed. Natural gas, silver, crude oil and corn lead the declines. In the meantime, “crop competition, booming ethanol demand and declining sugar beet areas globally signal higher prices,’’ London-based Bourlot said.