JEDDAH: The price of sugar is expected to remain volatile until October but may see some stability during the next two to three months, said a top official of the United Sugar Company (USC), Saudi Arabia’s only sugar refinery and the largest exporter of the commodity in the Middle East.
Mohammed Hamid Al-Klaiby, senior vice president of Savola Food-Sugar Middle East, of which USC is a subsidiary, was reacting to international trading in New York where the price for raw sugar surged to a 29-year high on Jan. 6, reaching 28.95 cents a pound, the highest since Jan. 27, 1981.
Al-Klaiby said the international market is responding to the situation in India, which has been giving varying figures for its production shortfall. India and Brazil are the biggest producers of sugar. But this season both countries have reported a sharp drop in output.
The global deficit for the sugar season (October 2009 to September 2010) is estimated to be 8.45 million tons. In India, estimates suggest the deficit for the season will be about 7-7.5 million tons. But Al-Klaiby said India, which is also the biggest consumer of the commodity, has been giving varying figures of production.
“Each time a new figure comes from New Delhi, it affects the international market,” said Al-Klaiby.
The Indian government announced last month that the production of sugar in 2009-10 may be only about 16 million tons against an estimated demand of 23 million tons.
Al-Klaiby said the exact Indian figure would be known by April after the season ends in March. “By then we would know how much India is going to buy from the international market. This will determine the course of the market,” he said.
Al-Klaiby said sugar remains cheaper in Saudi Arabia than other parts of the world. The average price of raw sugar in the international market went up 125 percent between January 2009 and January 2010 while white sugar surged 110 percent.
But the average price rise in Saudi Arabia was just 51 percent during this period.
Al-Klaiby said this could happen because his company was “proactive in the market. We ensure that enough sugar is rolling in the market.
Our dealers maintain good stocks all the time. This means they are always buying from us cheaper than the current market prices.”
USC produces 1.4 million tons sugar annually. Up to 900,000 tons are consumed locally while the rest is exported to the Middle East and Africa.
According to Al-Klaiby, USC produces EC2 standard sugar which is the European parameter for color and purity. It means it is the only certified supplier in the region to international companies like Pepsi and Coca Cola.
Last month, the price of sugar rose twice in the Kingdom. Al-Klaiby said local prices are affected by trading on the international market.
“It’s very similar to gold or oil trading which changes every minute,” he said.
When oil reached $147 a barrel last year, it was said that it would go up to $250. But soon it crashed to $32 a barrel. “Same is the case with sugar.
If after two months India says that it has enough stock of sugar, the market will come down,” he said.
Sugar shortfall in India is a routine affair, which is repeated every five to eight years. Called “India cycle,” the shortfall is normally two to three million tons. But this time around, India is going to need around 7 million tons “which is 40 percent of the global sugar trade.”
Al-Klaiby said previously Indians used to cut down consumption of sugar when prices go up. But because of improving economy, the purchasing power of Indians has increased.
“Now the demand remains the same no matter what the price is. This is compelling the Indian government to procure the commodity at any cost,” he added.