Sydney, Oct 9 - Asian sugar buyers are deferring purchases in the hope prices might ease further as harvests in Australia and Thailand gather pace, but India's plan to step up imports of raws is likely to prevent a sharp price downturn.
As the turmoil in financial markets feeds credit worries, traders said it was undermining strong fundamentals for the sugar market, which is expected to swing into a deficit next year, partly due to a shortfall in Indian production.
"Financial market chaos is getting in the way of fundamentals," said Tom McNeill, an Australian-based analyst at Lausanne headquartered consultancy Kingsman SA.
Premiums on Thailand sugar have remained steady, quoted unchanged on Wednesday at 140 points over New York Board of Trade for March shipment, while demand remained weak.
New York raw sugar for March delivery fell 0.14 cent to 12.08 cents per lb on Wednesday, the lowest level since Jan. 4, but Bangkok-based dealers said Thai sugar deals continued to be struck at premiums.
Traders said mills had very small stocks from the old crop, while buyers were staying on the sidelines, waiting for a price direction when the 2008/09 crushing season starts in November.
"Trading was very thin. I've committed a deal to sell only around 500 tonnes of raw sugar to a buyer in Asia this month," one trader said.
India, after buying 350,000 tonnes of Brazilian raws in its first big purchase in more than two years, is in talks to buy another 700,000-800,000 tonnes from Brazil and Thailand, Madhav B. Shriram, director of DCM Shriram Industries Ltd, told Reuters on Wednesday.
After flooding the world market with plentiful exports in recent years, India has turned into a sugar importer as trade officials expect a sharp fall in output because of erratic weather in the main growing regions in its south and west.
"At best they will be balanced but they may be a net importer over the next 12 months, which is a massive change in the regional numbers," McNeill said, referring to India.
Industry officials expect India's sugar production in the crop year ending September 2009 to drop to about 20 million tonnes, from 27 million tonnes in the previous year. In addition, Indian farmers switched from sugarcane to wheat and rice when prices for these products soared to record levels.
Traders said buyers in Asia and Africa were seeking shipments to replace sugar usually sourced from India, where an export subsidy ended on Sept. 17, cutting supplies.
CROP OUTLOOK
Traders said Thailand, Asia's largest sugar exporter, is expected to complete its harvest in November, while the region's second largest exporter, Australia, had completed about 60 percent of its annual harvest.
Kingsman is forecasting Thailand to produce 7.5 million tonnes of raw sugar, down from last year's 7.8 million tonnes. And Australian production is expected to be about 4.35 million tonnes, slightly down from 4.45 million tonnes last year.
For the year ending September 2008, India is estimated to have exported a record 4.8 million tonnes, against less than 2 million tonnes exported in the previous year.
McNeill said India's demise as a sugar exporter meant there would be less downward pressure on Thai premiums.
Several tonnes of Thai raw and white sugar were expected to be shipped out of the country this week. Around 20,000 tonnes of Thai raw sugar was to be shipped to Indonesia, 250 tonnes of white sugar to Tanzania and 500 tonnes of white sugar to Taiwan.