Fortis upbeat on sugar, even as prices slump 7%

India, the world’s biggest sugar consumer, is poised to come back to the market “with a vengeance”, Fortis Bank Nederland has said, lining up behind analysts optimistic over prices even as they slumped to a nine-month low.

The forecast came as analysts at FO Licht warned over the weak long-term prospects for the sugar price, which they said may fall to 10 cents a pound by October 2011.

While India has avoided revealing the size of its remaining sugar stocks, which it has eroded to maintain supplies in the face of a slump in domestic output, Fortis said it suspected they had been “eaten down effectively to zero”.

“By June we expect to see India return to the import market, with a vengeance,” the bank said, with other buyers, including China, also set to begin buying again after a pause to see how far the price rout would discount the sweetener.

There was “evidently scope for prices to recover in the second half of 2010 from where they are today”, if potentially falling next year, assuming a decent monsoon revives production in India, which is the world’s second ranked sugar producer.

Prices slump

However, the bank’s forecast that prices would “quite likely” find a floor at 17 cents a pound was proved wrong within moments of it being issued, as the market rout continued.

In New York, raw sugar for May delivery slumped 7.1% to 16.70 cents a pound, the lowest for a spot contract since June. It has now tumbled more than 45% from its 29-year high at the start of last month.

White sugar for May closed down 6.6% at $473.70 a tonne, an eight-month low.

The sell-off was being fuelled by technical factors, and in particular the movement of short-term moving averages below longer term peers, notably the 40-day line below the 100-day one, analysts said.

“This is no doubt encouraging further long liquidation as well as short selling from the funds and speculators, which is now driving prices way below even some of the most bearish expectations,” David Sadler at Sucden Financial Sugar said.

Production hopes

Separately, Stefan Uhlenbrock, senior commodity analyst at FO Licht, said India’s sugar production would recover to 25m-26m tonnes in 2010-11 from 17m-18m tonnes this year as prices, which remain high by historical levels, encourage farmers to plant.

Brazil, the world’s top producer, would see output rise to 40.5m tonnes, raw equivalent, from 36.2m tonnes this season.

While, in the short term, Egypt, India and Pakistan were poised to return to import markets, Mr Uhlenbrock said said he “could well imagine that [prices] fall to about 10 cents a pound” by the start of 2010-11.