New Delhi, Oct 22 - The global financial crisis will knock prices of sugar from New York to New Delhi, pushing prices below the cost of production and hurting expansion plans for mills, the head of Sucden India said.
Benchmark raw sugar futures in New York <0#SB:> could drop 2 cents to 9.5 cents per lb within six months as investment funds, stung by the liquidity crunch, were likely to exit, said Yatin Wadhwana, managing director of Sucden India Pvt Ltd.
"We are going to see the impact of the credit crisis within six months ... Funds will exit," Wadhwana, who heads the Indian arm of global trading house Sucden, told Reuters in an interview.
Sugar prices would be below cost even for top producer Brazil, which has the lowest cost of production in the world, he said.
"Sugar producers will be hit hard and shelve any plans to add capacity or expand."
On Monday, New York's March raw sugar contract <SBH9> slipped 0.08 cent to settle at 11.50 cents a lb.
Analysts say investment funds, who earlier considered sugar undervalued, had invested heavily. "The fall in global prices will determine prices movements in India, which will not be playing any major role this season unlike last year when it had exported a huge quantity," Wadhwana said.
Trade officials say India exported a record around 4.5 million tonnes of sugar in the crop year to September. But sales may slow to a trickle as the government has forecast output at 22 million tonnes against 26.5 million tonnes last year.
Traders say demand for sugar in India, the world's biggest consumer, will be 23 million tonnes in the year that began this month.
"I see domestic prices going down by 50 rupees ($1.02) to 100 rupees ($2.04) per 100 kg from next month against 1,700 rupees per 100 kg now as sugarcane crushing will be at its peak then," he said.
Mills in India begin crushing sugarcane from October and production peaks between November and March.
Wadhwana said local prices could rise from March as domestic mills might raise throughput to raise cash to pay for cane.
Mills say a glut due to higher production in the last two years triggered a freefall in prices, hurting their financial health and leading to an accumulation of arrears to be paid to cane growers.
Wadhwana said fears of recession might cut demand in the current festival season.
"There will be a fall in demand for sweetmeats. We will get to see a clear picture only after Diwali," he aid referring to the festival of lights to be celebrated here on Oct. 28. ($1=49.04 rupee)