Indian exports to E. Asia seen surging

SYDNEY, Nov 1 (Reuters) Australia is braced for a rising flood of Indian sugar exports to Indonesia and China in the next two months as the South Asian giant gears up to move the bulk of its sugar surplus at bargain prices.

Australian competitors see a forecast by India's sugar export guru S.L. Jain, of the Indian Sugar Exim Corp, for a doubling of exports to 3.5 million tonnes for the new crop year as too low, with 4-5 million tonnes possible.

''We haven't yet faced the reality of the Indian exports. There hasn't been a lot of pressure on the market from Indian raws...There's a lot of sugar in India. It will be tested out in the next two to three months,'' one Australian trade source said.

Indian exports to East Asia began to run hot in the year to October, overcoming high freight rates to land 205,000 tonnes of raw sugar in Indonesia, its second-largest export market, according to figures quoted by sugar broker and analyst Kingsman.

Indonesia is also one of Australia's best new markets, increasing its imports to nearly 500,000 tonnes in 2006 from virtually nil in 2000.

India also exported 109,000 tonnes to China, from its total exports of 1.7 million tonnes, as well as smaller amounts to Singapore.

India's focus on East Asia is in addition to new sales to Dubai and, most recently Russia, according to traders.

But in East Asia, greater Indian exports this year will put severe pressure on Australian operators, who are already in a survival battle against low prices and a strong Australian dollar now at 23-year highs.

This has heightened Australian industry reactions to what they have described as an ''extraordinary'' statement by Jain this week of an intention to cut prices to move big shipments.

''I am prepared to sell with a very small margin of profit or no margin at all. The idea is to ship out as much as possible without losing money,'' Jain was quoted by Reuters in New Delhi as saying on Tuesday.

One Australian source said: ''If you're a buyer out there you would be licking your lips after a statement like that. Here's a guy who doesn't really care what he gets.'' India needs cash flow and will export just to move its huge sugar stocks, Ian Ballantyne, head of the Canegrowers group, said.

Australia's own exports for 2007/08 are now well underway, with 1.5 million tonnes now seen shipped from total annual exports 3.2-3.3 million tonnes after a rain-delayed start to harvesting and crushing.

No one would be making money in the Australian sugar industry at present because of the combination of low prices and the high Australian dollar, Ballantyne said.

But Australia had little choice but to harvest, crush and export, he said. Storing sugar is not seen as an option.

Tom McNeill, Australian director of Lausanne-based brokerage and analyst Kingsman SA, said the Asian region was still under-supplied even though the world market was over-supplied.

This was producing premiums in Asia, but prices were still not enough to nudge the Australian industry into profit, Ballantyne said.

''If the Indians weren't exporting at all you would see a market probably another half-cent higher,'' he said. India was the main factor overhanging the market, keeping prices at 10.5 US cents a lb instead of 11.5 US cents a lb, Ballantyne said.

McNeill sees the next two to three months testing whether lower sugar exports by Brazil and Australia can accommodate Indian exports without further market falls -- and whether India itself can contain its exports to the lower than expected 3.5 million tonnes.

Doubts are still running high that India will be able to maintain production and exports at current high levels and this is pushing the more distant futures contracts to almost 11 cents, Ballantyne said.

If India's production and exports fell, Australian farmers would move back into the canefields, Ballantyne said.

REUTERS MP AS1154