(Updates with commodities credit outlook in sixth paragraph.)
Feb. 5 (Bloomberg) -- Sugar prices may fall to as low as 18 cents a pound this year as a forecast surplus for the 2011-12 season becomes available, according to Macquarie Group Ltd.
Sugar supplies are set to outpace demand by 9 million metric tons in the 2011-12 season that began in October, according to trader Olam International Ltd. The estimated surplus has started to reach the market and will increase throughout the year, said Carlos Murilo Barros de Mello, managing director at Macquarie Brasil Participacoes Ltda.
“The surplus has started to reach the market and we see potential for more downside until the end of the year,” he said in an interview in Dubai today, as an annual sugar conference organized by broker and researcher Kingsman SA opens.
Raw sugar traded in New York closed on Feb. 3 at 23.94 cents a pound. Prices are up 2.8 percent this year.
Prices are likely to fall the most after supplies from the next harvest in top global producer Brazil start to become available for sales in the second and third quarters, he said.
The sugar cane crop in Brazil will rise to 520 million tons in the harvest starting in April, Mello said. Output for the current season was 492.7 million tons as of Jan. 15, according to industry group Unica. Production of the sweetener will total 33 million tons, he said. That compares with 31.2 million tons so far this season, Unica data show.
Sugar prices are under pressure because European banks are pulling money out of raw materials, limiting credit lines to trade commodities, he said.
“The crisis in Europe is impacting banks there as they have to move money back to their home countries to cover losses that are appearing in their balance sheets,” Mello said. “National governments are pressuring European banks to finance their local economies and therefore they take money out of commodities and emerging markets.”
That ends up with consumers limited in their ability to buy materials and producers unable to store as much supply, adding to selling pressure, he said.
--Editors: Claudia Carpenter, Bruce Stanley
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