A huge line-up of vessels at Brazilian ports has triggered lengthy delays in loadings of sugar cargoes, contributing to a surge in sugar futures to seven-month highs, above the psychological 25 cents a lb resistance level.
"The Brazilian industry is going to continue to grow sugar production, and there will be a need for logistics to match that," said Toby Cohen, head of research at London-based sugar merchant Czarnikow.
Brazilian port officials say improvements in infrastructure and new investments in logistics will improve the capacity of Brazil to meet its increasingly onerous export commitments.
Brazil has been loading up to 2.6 million tons of sugar a month this year, up from 2.2 million a year ago, underlining the strength of physical demand, especially in the June-July period when Brazil is the predominant supplier of the world's sugar.
"Brazil's projected export growth will likely further expose the underlying inadequacies of the sector," said Cole Martin, commodities analyst with Business Monitor International.
"Steps towards private investment in the country's ports have generally been lacking."
A big logistical problem has been transport access to major sugar ports such as Santos.
"In theory, Santos has the capacity to ship all Brazilian sugar exports in only three months, but there are other bottlenecks such as the (road) access to the port," said Carlos Kopittke, commercial and development director at Santos port.
The port is investing in dredging to deepen Santos harbour canal.
Next year it will have a depth of 15 metres, being able to receive bigger ships and vessels for loading --- so the number of vessels will likely be lower than currently.
Three companies that operate terminals in Santos, including Cosan , are interested in building covers over the berth, enabling them to load bulk sugar when it rains.
Kopittke said the construction of these covers would take about 12 months after their approval. Companies are also investing in faster ship loaders.
The immediate impact of improved logistical support will help cut congestion and lead to less waiting times for ships.
"As loading times decrease ... Brazil will be able to ship more sugar and will further distance themselves, in terms of export volume, from other suppliers," said Andrew Winkler, analyst with dry bulk consultants Commodore Research.
INDIAN PRODUCTION
Upwardly revised forecasts for production in India, the world's second-biggest sugar producer after Brazil, could take the pressure off Brazil to some extent. India may need to import less Brazilian sugar next season and may fulfil orders from key regional buyers such as Pakistan, despite India's current export ban, analysts said.
"This should have the effect of reducing Brazilian sugar exports and relieving pressure on ports," said Gaurav Kumar with consultants MSI.
Indian analysts currently foresee Indian sugar output in 2010/11 at between 23 million and 26 million tons, revised up from earlier expectations of around 22 million, and 2009/10 output of 18.8 million tonnes, after a generally favourable monsoon.
"The improvement in the outlook for India production in the 10/11 season will reduce some of the demand pressures in the market," Czarnikow's Cohen said.
Sergey Gudoshnikov, a senior economist with the International Sugar Organization, said he believed strong demand for Brazilian sugar would persist into next season with port infrastructure remaining under heavy pressure.
Weather factors for next season remain a big unknown, making it difficult to forecast with any accuracy the full extent of pressure to be exerted on Brazil's sugar port export capacity.
Luis Rangel, vice president, commodity derivatives with ICAP North America, said a relatively strong La Nina phase in globa
