Sugar Rises to Highest Since 1983 in London on Supply Shortfall

By M. Shankar

Aug. 7 (Bloomberg) -- White sugar rose to a record in London on concern that adverse weather in producing nations such as India will mean a shortfall in supply.

With the Indian monsoon 64 percent below normal for the week ended Aug. 5, prices at Vashi, the country’s biggest wholesale-sugar market, rose to a record. China, the third- largest sugar producer after Brazil and India, said it may see a deficit of 1.5 million metric tons next year, according to an official from the National Development and Reform Commission.

“I remain cautiously positive as the market already discounted most of the bad news,” said Mehdi Chaouky, a research analyst in London at Diapason Commodities Management LLP, which has $6.5 billion invested in commodities. “The weather pattern is amplifying the price move.”

White, or refined, sugar for October delivery rose $11.60, or 2.2 percent, to $530.50 a ton on the Liffe exchange by 12:06 p.m. in London. It earlier reached $530.80, the highest since the contract started trading in July 1983, according to the exchange. Sugar has advanced in 11 of the past 13 sessions.

Raw sugar for October delivery gained 2.2 percent to 20.23 cents a pound on ICE Futures U.S. in New York, the highest for a most-active contract since April 1981. While refined sugar is up 66 percent this year, raw sugar has surged 71 percent.

Global Deficit

India, the world’s biggest sugar consumer and second- largest producer, is expected to import 5 million tons in 2009- 10, compared with an estimate of about 2.7 million tons this year, researcher Sucres & Denrees Group said last week. The country has contracted to import 2.9 million tons of raw sugar so far this year, Farm Minister Sharad Pawar said yesterday.

The global shortfall is projected to be 4 million tons next year, compared with a deficit of 8 million tons this year, according to Sucres & Denrees.

Mexico set a sugar import quota of 393,000 tons until December, according to the Federal Diary, which published the quota yesterday. The country needs to buy sugar from overseas to cover a decline in domestic production.

Inadequate rains in July last year cut Indian cane yields, causing sugar output to halve and turning the country into a net buyer for the first time since the 2005-06 season. Production is expected to drop 44 percent to 14.7 million tons in the year ending Sept. 30, the Indian Sugar Mills Association has said.

“A large portion of the investing community has been playing the theme of decreased sugar cane output in India and the extension of duty free imports by the Indian government,” said Chaouky of Diapason.

Among other agricultural commodities trading on Liffe, robusta coffee for September delivery fell $26, or 1.7 percent, to $1,468 a ton. Cocoa for the same month rose 2 pounds to 1,747 pounds ($2,924) a ton.

To contact the reporter on this story: M. Shankar in London at mshankar@bloomberg.net