Thailand will see its sugar production rebound in 2013-2014, benefiting from good import demand from Indonesia and Japan, but nation's favorable production won't be enough to offset other producers' decreasing output, says Business Monitor International
September 19, 2013
(Business Monitor International)
– Thailand will see its sugar production rebound in 2013/14 after 2012/13's disappointing output. The country should benefit from good import demand coming from its traditional clients, Indonesia and Japan. However, Thailand's favourable production will not be enough to completely offset other major producers' decreasing output. We see international prices averaging higher in 2014 and 2015 due to declining global production surpluses.
We continue to believe Thailand's sugar production will rebound in 2013/14 after 2012/13's disappointing output. We see production reaching 10.4mn tonnes, up 5.1% year-on-year (y-o-y), on the back of favourable weather which is helping the country to reap a record cane crop. The ongoing expansion in processing capacity is also helping output growth. Thailand is on track to reap a record sugarcane crop, at 100mn tonnes, up 0.6% y-o-y according to the Office of the Cane and Sugar Board. The average sugarcane extraction rate is likely to recover to 103-104kg/tonne of cane after falling to 100kg/tonne in 2012/13.
We forecast Thai exports to come in strong in 2013/14 and could reach a record high of 8.5mn tonnes, compared with 8.0mn tonnes in 2012/13 and the five-year average of 6.6mn tonnes. Shipments will be favoured by the recovery in production and strong demand coming from Thailand's traditional clients, Indonesia, Japan and South Korea. Pushed by low international sugar prices and robust demand from the food processing sector, we forecast consumption growth to come in strong in 2013/14.
Strong global demand feeds into our view that sugar prices have found a bottom for now at around USc16.00/lb. We expect prices to rebound from there in the near term as the global sugar supply will only tighten from now, with the Brazilian sugar harvest reaching an end. Other large producers' 2013/14 harvest, starting in November 2013, will be disappointing as India is set to have little surplus to export this season, while production growth will falter in Australia. The weakening of the Brazilian real and of the Thai baht will also favour exports. Sugar net speculative long positions have recently started to pick up after hovering around their five-year lows during the first half of 2013.
In the medium term, we believe prices will average slightly higher, at USc18.00/lb in 2014 and USc18.50/lb in 2015. The global surplus will significantly narrow in 2013/14 and 2014/15 to around 5mn tonnes, compared with 8mn tonnes in 2012/13.