Sugar Mills in Thailand Battle Strengthening Baht as Prices Drop

Sugar revenue for millers in Thailand, the world’s second-biggest exporter, is falling faster than shipments as the strengthening baht erodes incomes and prices for the commodity extend declines.

Export revenue from sugar fell 34 percent to 7.97 billion baht ($270 million) in March from a year earlier while shipments dropped 24 percent, data from the Ministry of Commerce show. The baht climbed to 28.56 to the dollar on April 19, the strongest level since a devaluation in July 1997. It was 29.20 a dollar today. Sugar is heading for a third year of declines, which would mean the longest slump since 1992.

“Our export income has fallen by around 10 percent from the beginning of the year as the localcurrency climbed,” said Piromsak Sasunee, chief executive officer of Thai Sugar Trading Corp. in Bangkok, the country’s biggest exporter. “Export volume is barely affected by the baht strength but our income in baht term reduces significantly.”

A strengthening baht is more likely to affect export revenue than shipments because producers in Thailand can’t use their cane to make other products, according to brokerage Newedge Group. In Brazil, the world’s biggest exporter, producers use cane to make sugar and ethanol.

“The Thais don’t have a big option to make ethanol for the internal market like in Brazil, so the baht weakness or strength will only help or hurt the bottom line of the mills and spur more or less investment in the longer term,” said Michael McDougall, head of the Brazil desk at Newedge.

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