Raw Sugar May Reach Lowest Since 2004, ED&F Man Says (Update1)

May 4 (Bloomberg) -- Raw sugar will drop to a two-and-a- half-year low of 8 cents a pound because of increasing production in Brazil, India, Russia and Pakistan, said ED&F Man Holdings Ltd., the world's biggest trader of the sweetener.

Global output will exceed demand by 9.8 million metric tons this year after growers expanded plantings to take advantage of a 25-year high in prices last year, London-based ED&F Man said in a report today. Brazil will produce 30.9 million tons, leaving a 20.4 million-ton domestic surplus. India will have a 5.5 million- ton surplus and may export as much as 1.2 million tons.

The outlook for raw and refined sugar prices ``remains rather bleak,'' analysts led by John Ireland, head of sugar research for ED&F in London, said in the report. ``A good start to the current Brazilian crop and even higher estimates for the forthcoming crops in the key regions makes the scenario bearish for the coming months.''

Raw sugar for July delivery on the New York Board of Trade gained 6 cents, or 0.7 percent, to 9.35 cents a pound as of 8:41 a.m. local time. Raw sugar has dropped 45 percent in a year. Eight cents would be the lowest since Sept. 10, 2004. The ED&F analysts didn't say when they expect that price.

White sugar for August delivery climbed $4.70, or 1.5 percent, to $317.50 a ton on Euronext.liffe in London, giving refined sugar a premium of $111 over raw. The premium stood at $83 on Jan. 3. The European Union has shipped less than 700,000 tons on export licenses since Oct. 1, down from 4.9 million tons by this time last year, ED&F said.

Refining Capacity

The 27-nation EU is cutting its production to comply with a ruling by the World Trade Organization limiting the amount of the sweetener the bloc can export. The cuts will lead to a temporary shortfall in white sugar until new refining capacity comes on stream, mostly in the Middle East and North Africa, ED&F said.

``In terms of the white premium, we expect it to remain well supported for the time being given the ongoing structural deficit in the refined sugar market,'' the report said.

Russia, the world's biggest importer of sugar, has more than doubled its sugar beet plantings to 504,300 hectares (1.25 million acres), compared with 284,000 by this time last year, ED&F said. The country is forecast to import 17 percent less sugar this year, at 2.5 million tons.

Pakistan, which imported 1.5 million tons of sugar last year, may have reached self-sufficiency this year, following a forecast 30 percent increase in its sugar production to 3.6 million tons and higher than expected inventories from last year, ED&F said.

A record crop is forecast for Brazil's centre-south region, which accounts for 85 percent of the country's cane output. The harvest, which started last month, may yield 416.5 million tons, in turn producing almost 27.4 million tons of sugar, the report said. The country is expected to produce 31.9 million tons in total in the 2007-2008 season.