Kingsman reduced its estimate for the world production sugar surplus, but only by a modest 137,000 tonnes, cautioning against viewing raised import demand as evidence of soaring consumption.
The consultancy acknowledged the sugar market's "unusual" focus on consumption levels - a debate fuelled by comments last week by Czarnikow as the London-based merchant slashed its forecast for the world sugar production surplus in 2013-14 by 1.9m tonnes.
Indeed, weaker prices have "significantly boosted" demand, Kingsman said, raising its estimate for world consumption in 2013-14 by 1.14m tonnes to 173.6m tonnes, a rise of 2.78m tonnes year on year.
However, it questioned assertions of depleted stocks in most countries, saying that inventory rebuilds had also played a part in boosting trade volumes.
'Moves in steps'
"Lower sugar prices have stimulated consumption around the world but, even so, a significant part of the global production surplus is stored in warehouses at destination and at origin – and all along the supply pipeline," Kingsman said.
Sugar consumption, rather than showing a gradual increase "moves in steps", reflecting its movement through price levels at which it becomes economic for industrial users to use the sweetener rather than alternatives, such as high fructose corn syrup.
"Sugar consumption may step higher on increased demand from food and drink processors if the domestic sugar price falls below the domestic price of corn sweeteners", or if prices "fall below alternative feedstock prices for MSG [monosodium glutamate] and lysine manufacturers".
With the Swiss-based consultancy raising its forecast for sugar production in 2013-14 by 1.0m tonnes to 178.0m tonnes, the surplus was lowered to 4.45m tonnes, from a previous estimate, released in May, of 4.59m tonnes.
'Difficult to make case for rally'
Separately, Marex Spectron too took a more upbeat view on the size of world stocks, saying that inventories depleted during the bull market of 2010 and 2011 had been refilled as prices corrected.
The London-based broker, in a report on Thursday, said that the world sugar surplus, set to hit the market in the last three months of 2013, would "be smaller and shorter-lived than expected", and had aanyway "already been discounted" by investors.
But it was "very difficult to make a case for a substantial rally" given the extent of inventories.
"If prices rise, Chinese demand could fall by 3m tonnes, India could export 2m tonnes, and stocks in the EU, North America and many other areas could begin to be run down, thus increasing supply/ diminishing demand," Marex said.
Sugar vs HFCS
Kingsman's revisions incorporated higher estimates for sugar consumption in China, Indonesia and Mexico, "on a mixture of lower prices and booming economies".
In Mexico - an important export market for US makers of corn-based sweeteners such as Archer Daniels Midland and Cargill – "sugar is taking market share from HFCS, consumption of which is down 10%".
On production, the estimate for Brazil's key Centre South region was lowered by 300,000 tonnes to 34.1m tonnes, "mainly due to lower sugar content" in cane, which the consultancy said had not recovered from rains in April
However, the estimate for Indian output was lifted by 1.25m tonnes to 25.45m tonnes, reflecting strong monsoon rains, and for Thai production by 1.3m tonnes to 11.66m tonnes.
"Cane is still one of the most competitive crops and farmers have been switching away from tapioca, rice and rubber," Kingsman said.