Competition stepping up in Middle East, India, Pakistan: huge sugar expiry signals strong refinery demand

May 02, 2013

Raw Sugar
Raw Sugar

A huge raw sugar delivery against the ICE May expiry could signal hefty demand by big refineries taking advantage of a buoyant whites-over-raws premium. The delivery of 1.4 million tonnes against expiry of the ICE May contract on Tuesday, the highest tonnage since at least 1989, was likely to trigger raw sugar sales to South East Asian markets, traders said.

However, some doubted that China would be a major market for delivered sugar, as the country has imported vast quantities of the sweetener over the past year and built up enormous stocks, and is now at the tail end of its domestic harvest. ICE front-month, May raw sugar futures dipped on Monday to 17.13 cents a lb, their lowest level in more than 2-1/2 years, pressured by surpluses in Brazil and higher-than-expected output in Thailand and India.

Following the expiry, the new front month, July futures were up 0.01 cent to 17.61 cents a lb in light dealings on Wednesday, with many traders away from their desks for the May Day holiday. Traders said receivers may move delivered sugar to fulfil long-term contracts, and that they may have built hedging strategies in order to meet demand in Southeast Asia, a major destination for global raw sugar trade.

ICE May sugar delivery totalled 1.43 million tonnes, or 28,210 lots, according to the exchange. There were three receivers of the delivery, and origins were Brazil and Costa Rica, ICE data showed on Wednesday. Many dealers were surprised by the size of the delivery tonnage, having anticipated that some 500,000 tonnes would go to the tape. They said the current high whites-over-raws premium, a result of abundant global raw sugar supplies and tight white sugar availability, was stimulating refining activity.

“We have seen refineries working closer to capacity than they had been,” one senior source with a sugar merchant said. The whites-over-raws premium, a measure of the profitability of refining, stood at $118 per tonne on Wednesday, up from $100 a month ago. Refining is generally considered remunerative at a whites premium of around $90 per tonne.

But dealers said the delivery could come too late to meet demand linked to the Muslim festival of Ramadan, due to the shipping and delivery periods required to reach consumer markets. Although performing better than raw sugar, refined sugar prices are still low enough to attract strong demand, particularly from North Africa and East Africa.

In the Middle East, white sugar shipments have already begun ahead of Ramadan, which starts this year on July 9 and is followed by three days of celebration after it ends on August 7. Algeria”s Cevital sugar refinery and Dubai”s Al Khaleej refinery, one of the biggest in the world, both boosted raw sugar buying in March from previous months, dealers said. One London-based analyst estimated that the world”s leading sugar refineries imported around 1 million tonnes more raw sugar than initially expected in the first quarter of this year.

Competition to sell whites is stepping up as Middle East, Indian, Pakistani and Thai refiners increase processing and look to export. In the Americas, Mexico”s sugar refiners are expected to export substantial supplies from a huge surplus in the coming months. Source Reuters

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