Global sugar deficit for a second year and the biggest annual gain in prices in more than three decades will lead to "forced demand destruction," according to an executive at Al Khaleej Sugar Co., the biggest refiner.

"White-sugar demand far exceeds the supply, and there's very little stock pipeline to squeeze," Cyrus Raja, general manager at the Dubai-based company, said in an e-mail.

Indonesia, Iraq, Egypt, Pakistan and Tanzania are among nations seeking to buy sugar to cool local prices, straining global supplies forecast by broker Czarnikow Group Ltd. to fall short of demand by 13.5 million tons in the 2009-2010 season.
Sugar had its biggest annual gain since 1974 last year because of weather disruptions in Brazil and India, the largest growers.

"In my view, there will be further demand destruction in the second-half of 2010," Raja wrote in reply to questions.

March-delivery raw sugar fell 2.8 percent to 26.75 cents a pound yesterday in New York, the most since Nov. 5. White, or refined, sugar for March delivery dropped 1.3 percent to $717 a ton in London yesterday, the most since Dec. 21.

India, importing sugar for a second year, may need to buy at least 7 million tons this season, Macquarie Group Ltd. said Jan. 8, as the government tries to lower prices from more than a four-year high. China, the biggest consumer after India, may have a deficit of 3.3 million tons this year after drought and cold weather cut yields, the Guangxi Bulk Sugar Exchange Center cited an executive as saying yesterday.

Pakistan, Asia's third-biggest sugar consumer, plans to buy 500,000 tons of white sugar by June as a shortage pushes prices to near-record levels, a millers' group said last month.

Eoin Treacy's view The popularity of sugary foods helps to support long-term demand growth, particularly with the ascent of billions of new middle class consumers to the global economy. However, as with all weather dependent commodities price can be volatile and the recent surges may be putting the commodity out of reach for some. A factual reading of the chart action will best equip us to decide whether demand destruction is occurring. (Also see Comment of the Day on January 7th)

The widening of Sugar's backwardation on Liffe and NYB-ICE has lost momentum. The progressions of rising lows remains in place but sustained moves to new highs are now needed to signal a continued deterioration on the supply side.

The US traded contract spent much of the second half of 2009 ranging below 25¢ before breaking upwards in December. It became somewhat overextended in the short-term and pulled back last week. However, a sustained move below 24¢ would be required to question the consistency of the medium-term move.

The UK traded contract also broke upwards in December and encountered resistance last week in the region of $750. This contract has performed somewhat better than US traded sugar and has more room to consolidate the impressive advance above the previous range. Therefore a sustained move below $650 would be required to question the consistency of the medium-term uptrend.