LONDON/MUMBAI Any further downward revisions in Indian sugar output due to drought could drive global sugar prices higher, extending a rally that has been fuelled by rising global deficit forecasts, traders said on Monday.
They said India's production in 2015/16 could be significantly below some current estimates, suggesting scope for an even larger deficit this season.
Commodities house Czarnikow, for example, revised up its 2015/16 global deficit estimate to 11.4 million tonnes last week, triggering a surge in raw sugar futures, but some see its forecast for India's crop of 29 million tonnes as still too high.
Traders said a consensus is emerging that the crop could be around 25.5 million tonnes.
"If they cut their Indian number, their deficit would be significantly higher," one senior European trade source said, adding Czarnikow's forecast was already at the top end of market estimates.
India is the world's No. 2 sugar producer after Brazil.
After six straight years of surplus output, India's production is set to fall in the season to September 2016, due to two consecutive years of drought that cut yields and eroded sucrose content in cane.
"Since some mills are still operating, sugar production, in my view, will touch 25.6 million tonnes this year against 28.3 million tonnes last year," said Mukesh Kuvadia, secretary general of the Bombay Sugar Merchants' Association.
"As a result of two droughts in 2014 and 2015, production is going to drop to 22.5-to-23.0 million tonnes next year."
Sugar production is expected to drop in 2015/16 and 2016/17, largely because of lower output in Maharashtra, the top sugar producing state.
"According to our latest estimates, Maharashtra is likely to produce about 8.5 million tonnes of sugar this year against 10.2 million last year. And in 2016/17 the state's output is expected to fall further to about 6.5 million tonnes," Kuvadia said.
Ex-mill sugar prices in India have surged to 35 rupees a kg, up from 32 rupees a kg about three months ago, while ICE's front month global raw sugar futures contract rose to a 2-1/2 week high of 15.54 cents a lb on Monday.
"We expect that the estimates of lower output in India will give a fillip to global prices," Kuvadia said.
(Editing by Nigel Hunt and David Evans)
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