Sydney, Dec 11 - Cheap imports of Brazilian sugar into Asia are threatening premiums for sugar from Thailand, the region's top exporter, where a larger than expected harvest is now gathering momentum.
Brazilian sugar has been finding its way into Asia thanks to a massive drop in shipping rates as world trade has slowed in step with the deteriorating global economy.
In Thailand, the sugarcane harvest is expected to be closer to 75 million tonnes than earlier estimates of 70 million to 72 million, an Australian-based industry analyst said.
"There's going to be plenty of Thai sugar but no one seems to be interested in bidding for it," said the analyst, who did not wish to be named. "The biggest problem in the market is that there's a very substantial over supply in the short term."
Brazilian sugar was selling at a substantial discount to the futures market, some 1.5-1.6 cents per pound less than the near month futures contract, the analyst said.
"It's a huge discount historically which is a problem for the Thais as with very low freight rates and preparedness to sell at discount Brazilian sugar can go just about anywhere," he said.
The analyst said there were unconfirmed reports that China had bought 100,000-200,000 tonnes of Brazilian sugar even though the Asian giant still has a substantial domestic stockpile.
Long-term sugar fundamentals remain sound despite near-term pressures, said Toby Hassall, an analyst at Commodity Warrants Australia.
"The fundamentals are fairly supportive, although the sharp falls in crude prices have negatively impacted on cane demand for ethanol, so if we are seeing a bottom in crude oil prices then that, maybe, will set up sugar for a bit of a bullish run next year," said Hassall.
MEDIUM-TERM SUPPORT
India is expected to become a net sugar importer next year, adding to support for prices in the medium term.
India, where farmers have switched to other crops offering higher returns, is expected to produce around 20 million tonnes of sugar in the year to September 2009, down nearly a quarter from 26.5 million tonnes a year earlier.
The country's top producing state, western Maharashtra, had produced 900,000 tonnes of sugar by Dec. 4 as the crushing season reaches its peak, down nearly 10 percent from 1.1 million tonnes a year ago, a senior industry official said.
Traders in the Thai capital, Bangkok, said they expected Thai premiums to slide further as traditional buyers shifted to buying the sweetener from Brazil.
They said there were no bids for Thai raws but some dealers offered sugar at 80 to 90 points over New York's March contract, itself unchanged from last week, when bids were heard at 50 points.
Traders expect Thailand to sell less sugar next year to Indonesia, the main buyer of Thai sugar, because it has ample supplies.
Also, Indonesia has applied new refined sugar standards, requiring greater whiteness that would mean higher costs for Thai millers, making their product uncompetitive.
A new decree by Indonesia's industry ministry specifies 45 to 80 ICUMSA for refined sugar, with effect from the middle of February next year.
"Imported refined sugar which does not meet requirements should be re-exported or destroyed," the decree said.
Indonesia's food and beverages industry imported 606,728 tonnes of refined sugar in 2007 while local sugar refiners imported 1.9 million tonnes of raw sugar.
Traders said there was speculation the Indonesian government might only allow imports of raw sugar next year.
"In December we normally should have started selecting vessels for bringing in our sugar. But this year, we still don't even know if we can still import next year," a trader at a sugar importing firm said.
Indonesia normally buys sugar from neighbouring Thailand and Australia.