Sugar May Rise on Less Supply From India, EU, ISO's Rocha Says

By Feiwen Rong and Claire Leow

July 9 (Bloomberg) -- Sugar may extend gains on expectation that farmers in India and the European Union may switch to other crops, paring global supply and helping narrow a surplus which depressed prices for the past two years.

India, the world's second largest producer, may cut output by up to 4 million metric tons to 22 million tons next season ``as a result of less cane availability,'' Leonardo Rocha, an economist at the International Sugar Organization, said in an interview yesterday in Singapore. The European Union may reduce output by about 2 million tons next year, he said.

Raw sugar futures traded in New York were the worst performer after zinc in the past two years on the UBS Bloomberg Constant Maturity Commodity Index as growers from Brazil to India boosted output after prices rose to a 25-year high. The sweetener gained 41 percent in the past month.

``I see sugar prices going up,'' Rocha said. ``The surplus being talked about in the sugar market is estimated at 8 million tons now, and that surplus could disappear next year if you remove up to 6 million tons from the supply while consumption is growing at a rate of 3 million tons every year,'' he said.

Raw sugar futures traded on ICE Futures U.S., the former New York Board of Trade, rose 1.7 percent to 13.75 cents a pound yesterday. The most-active contract closed at a 25-year high of 19.3 cents a pound on Feb. 3, 2006.

India may grow less sugar cane this year, farm secretary P.K. Mishra said yesterday in New Delhi. The crop was planted on 4.3 million hectares (10.6 million acres) by July 4, 17 percent less than a year earlier, the ministry has said.

Ethanol Demand

Sugar prices can ``easily go up to 15 cents a pound'' without causing excessive supply from Brazil, the world's largest cane grower, Rocha said.

Brazil is using about 60 percent of its cane production for ethanol, up from 50 percent two years ago, as crude oil's rally to a record increases demand for the fuel, Rocha said.

``They might start looking at making more sugar'' if prices for the sweetener rose above 15 cents, shifting the global supply and demand balance, he said.

Brazil boosted its cane output by 70 million tons a year in the past two seasons, equal to the annual output from Thailand, the world's sixth largest cane producer, Rocha said. Most of the harvest has been turned into ethanol to fuel Brazil's cars.

``The sugar prices can't go up too much because if Brazil were to use all of its cane for sugar, you'd have an additional 40 million tons of sugar output,'' Rocha said, adding that global production is now 170 million tons.

To contact the reporters on this story: Claire Leow in Singapore at cleow@bloomberg.net; Feiwen Rong in Singapore at frong2@bloomberg.net