See you later, sugar

Looks like domestic sugar prices will continue flirting with its record highs this year; though not driven by market fundamentals; but due to artificial price mechanism controlled largely by the millers. The common sweetener is currently sold at around Rs 48.5 per kg in open market - its highest level of the year - despite the 21 percent drop in consumption target level this fiscal year.
According to official data released by the government, Pakistanis would be consuming 294,000 tons of sugar per month this year, implying a demand of 1.47 million tons for the remaining part of CY09. Assuming that consumption rises by 20 percent in the month of Ramadan, then this demand would potentially increase to 1.53 million tons - still much lower than currently available stocks of 2 million tons as per Pakistan Sugar Mills Association.
So if there is surplus commodity, then whats keeping prices north? Apparently its hoarding, as the Trading Corporation of Pakistan has only 216,000 tons in their stocks leaving the remaining 1.3 million tons with the millers. Ordinarily, the government would have imported sugar, like it did in the previous years, to lower domestic prices. However, the move - which was also used as a deterrent against price speculation - looks unfeasible this year as imported sugar will cost around Rs 60 per kg owing to soaring international prices.
The price of sugar in global market is currently at its historical peak of 16.58 cents per pound. As for the future outlook one cant say much. The supply-demand situation seems tilted towards excess supply as new commodity arrivals from January 2010 are likely to be higher due to better support prices and rising crop yields amid moderate rains. But unless the government is able to ensure that millers dont manipulate prices - chances are sugar will remain costly next year as well.
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