Shafiqul Islam Jibon

Sugar prices are likely to fall soon in local markets as its over-production by Asian nations like India, the Philippines and Thailand threatens to push prices significantly lower, market observers said.

They said the main sugar-producing countries have enjoyed an economic boost when the price of the commodity soared earlier this year.

Asian farmers, according todifferent reports in the media Thursday, fear that prices may fall further in coming days as roughly 320,000-400,000 tonnes of sugar that were originally due to arrive in China over July/August/September 2012 have been diverted to Bangladesh, Indonesia, Malaysia and some other importing countries. 

Some dealers put their estimates at between 300,000 and 500,000 tonnes, saying that more cargoes could also be diverted in the fourth quarter of the year due to rising domestic stocks.

The reports said China's stocks at the end of the new 2012-2013 crop year would be 22 per cent higher than that of the previous year at 2.3 million tonnes, showing a data from the U.S. Department of Agriculture (USDA) attaches in China.

China has also diverted up to half a million tonnes of Brazilian sugar scheduled to reach its shores in the third quarter of the year to other destinations, including India, Indonesia and Malaysia, to avoid a glut in supplies, dealers said.

China's sugar imports soared 170 per cent in the first half of this year after a state-run scheme to buy the commodity for reserves as well as to encourage traders to bring in cargoes to the world's second-largest economy.

But the reselling also suggested there was still some demand for sugar, which could help New York raw futures resist pressure from rising supply in top producer Brazil. 

There have been a number of cargoes originally bound for China that have ended up going to alternative destinations, said Tom McNeill, director of Green Pool, a commodities analyst in Brisbane.

A senior analyst with an international trading house based in Europe said that most redirected cargoes, known in the industry as 'washouts', were for Aug-Dec shipments.

"The surprising thing is that some of these vessels are now headed to India where there has been a growing demand for imported sugar. It is possible that initially total raw business concluded was close to four million tonnes and that the washouts could have been 500,000 tonnes," said the analyst.

Dealers said demand for raw sugar from refiners was steady ahead of the Eid-ul-Fitr festival, with the whites-over-raws premium, a measure of refining profitability, standing at $125 per tonne.

"Some of the vessels that were going to China will now be going for toll refining in Dubai and India. One bright spot has been the way the white premium has held relatively strong, providing an opportunity for standalone refineries to ramp up their throughput," said a European broker.

"China's rising output is partly responsible for the latest global sugar surplus forecast for the 2012/13 season of 4.72 million tonnes, higher than the 3.20 million tonnes forecast in January," a Reuters poll shows.