WORLD – Despite a collapse in the oil price and India raising an export subsidy, indications are that the world sugar market is about to shift into deficit territory for a few years, Illovo Sugar MD Gavin Dalgleish said on Friday.

With world supplies consistently surpassing demand for some years, sugar prices have been dented since reaching a 30-year high of US36.08c a pound in 2011.

The international price for sugar was 14.76c on Friday, though forecasts are that excess supply is being reined in as major producers such as Brazil continue to close unprofitable mills. Brazil, the world’s biggest producer, last year had the fewest number of mills operating in six seasons.

“There’s lots of indications all over that the effect of increased demand, and stagnant if not declining production, has now closed that supply gap, and that we’ll be going into several years of deficits,” Mr Dalgleish said.

Australian research firm Green Pool last week forecast global consumption to rise 1.7% this year, while saying production would be held back by “five successive years of output exceeding demand”.

The world’s two biggest producers are Brazil and India, though both have come under pressure with depressed prices.

Illovo last year hoped the Brazilian government’s move to more market-friendly policies — where it allowed a rare rise in domestic fuel prices — would encourage its growers to produce more ethanol and less sugar.

“For quite a while the Rousseff government had artificially maintained a fairly low price for their local fuel.”

But while the Brazilian government allowed for fuel price hikes in November, this was negated by a halving of the world oil price in the second half of last year.

“Their local fuel price fell completely in line with the crude oil price — we all took a deep sigh because we’re always hoping for it to recorrect.”

Meanwhile, the Indian government seemed likely to raise its export subsidy amid a large harvest, Mr Dalgleish said.

But he said the strengthening of the Brazilian real on European stimulus policies and talk of the country increasing the blend ratio of ethanol in fuels would help stabilise global supply-demand dynamics for sugar.

South African sugar producers are protected from low world prices thanks to a decision last year by the International Trade Administration Commission to give effect to import duties.

Itac increased the dollar-based reference price of sugar — a price that determines the tariff importers must pay. Mr Dalgleish said imports had in effect dried up since. But Illovo was still subject to low world prices when exporting, and from imports into its other regional markets.

“We have a lot of strong domestic markets, which keeps us afloat and stable, but not reporting the spectacular growth we want. That uptick in world prices will be good for us,” he said.

Illovo last month reported a 10% fall in earnings and 5% drop in revenue for its six months to end-September.

February 2, 2015;