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Sugar price recovery 'unlikely', says ISO

The International Sugar Organization, in the first of two major sugar reports on Tuesday, forecast extended weakness in prices of the sweetener as it forecast a fifth successive world production surplus.

The ISO, in its first full estimates for 2014-15, starting in October, ditched the idea it had pencilled in of "neatly balanced" world output and demand, forecasting instead a production surplus of 1.31m tonnes.

This would represent the fifth successive season when production has exceeded consumption, driving stocks up to 78.01m tonnes as of the end of 2013-14, albeit a season for which the ISO trimmed its forecast for the surplus by 436,000 tonnes to 3.99m tonnes.

And it bodes ill for relieving the "bearish pressure" which has driven prices of raw sugar to seven-month lows, while seeing the premium of white sugar to raws drop to a nine-year low of $55.48 a tonne last month.

"The ISO believes that, even with the small forecast surplus, global fundamentals are unlikely to support a rise in market values from current values," the organisation said.

"Crucially, any possible price recovery brought by production shocks over the course of 2014-15 might be muted by the huge stocks accumulated since the beginning of the surplus phase in 2010-11."

Brazil prospects

The organisation acknowledged the worsened prospects for output in Brazil, the top producing country, where early-year drought has sapped cane harvest potential.

ISO sugar forecasts, 2014-15 and (year on year change)

Production: 183.752m tonnes, +0.6%

Consumption: 182.446m tonnes, (+2.1%)

Surplus: 1.306m tonnes, (-33%)

Indeed, the data came minutes before Unica, the Brazilian industry group, reduced to 546m tonnes, from 580m tonnes, its forecast for the cane harvest in the key Centre South region for 2014-15, on an April-to-March basis.

The ISO, which had forecast that Brazil was poised for a 1.2% reduction in sugar output in 2014-15, on an October-to-September basis, estimated the country's output at 39.5m tonnes, a drop of 1.7%.

A forecast for a drop of about 500,000 tonnes in Chinese output was increased to a forecast of a 1.35m-tonne decline, to 13.25m tonnes.

'Prospects have improved'

Even so, the ISO flagged the negative, in pricing terms, of the prospect of weaker purchases on foreign markets by China, which has large domestic inventories.

"Domestic prices in China have continued to fall, auguring for potentially lower imports over the next season."

Furthermore, the group ditched ideas of a drop in Thai output next season, and forecast a 1.1m-tonne rise to 27.1m tonnes in production in India, where "prospects have improved on the back of more plentiful rainfall" after a weak start to the monsoon.

The ISO also highlighted that "initial beet tests in European producers have turned out to be better than expected, bolstered by good weather during the growing season".

European Union output for 2014-15 was seen rising 875,000 tonnes to 17.8m tonnes.

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