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Brazil, India to spur volatile sugar market

NEW YORK (Reuters) - The sugar market will remain volatile because of the sharp swings in production in top consumer India and rising production costs in leading grower and exporter Brazil, an official of the International Sugar Organization said Wednesday.

A labourer peels sugarcane at a wholesale market in Siliguri February 27, 2008. REUTERS/Rupak De Chowdhuri/Files

Leonardo Bichara Rocha, the ISO’s senior economist, said at the annual ISO/Datagro sugar meeting the two nations will remain the “key drivers” of the sugar market.

“Prices will be more volatile due to the market dominance of India and Brazil,” he added.

The raw sugar market rallied to a 29-year high of 30.40 cents a lb on Feb. 1, driven to a large degree by large import orders by India after the annual monsoon faltered and reduced sugar production there.

Excessive rains late in 2009 that left around 40 million tonnes of cane in the fields of Brazil also sparked the rally.

When news went out that India’s sugar output recovered and Brazil’s cane output in 2010/11 would be large, that contributed to a massive sell-off that dropped raw sugar prices to a one-year low at 13 cents on May 7.

India injects a large note of uncertainty in the market because its output in any given season could cut the supply balance by up to 5 million tonnes or raise it by 5 million tonnes.

“The swings in production from one year to the next (in India) are becoming bumpier and bumpier,” Rocha said.

Two consecutive poor annual monsoon seasons reduced the cane crop in India, the world’s No. 1 consumer of sugar. This forced the country to book large imports of sugar.

Sugar production in India, which would normally range from 20 million to 23 million tonnes, dropped in 2009/10 to around 18 million. That output is expected to recover to about 24 million in 2010/11.

Brazil’s cane crush in 2010/11 is seen at almost 604 million tonnes, up from 541 million in the preceding season.

Rocha said one issue confronting Brazilian cane growers in the coming years would be rising production costs.

Another strong factor the sugar market is looking at is robust demand from Asia as increasing affluence and economic growth lead to higher sugar consumption.

More sugar refineries are also going up in the Middle East and Asia, and this would lead to increased demand in the coming years in the two regions, the ISO official said.

“If the engine of demand is in Asia, it is clear the engine of ... supply is in Latin America,” Rocha concluded.

Reporting by Rene Pastor; Editing by Walter Bagley