May 22nd, 2012

Sugar Futures – A delay in harvesting the sugar cane crop in Brazil will see the world’s largest producer lose market share in China, set to be one of the season’s biggest importers, as Thailand increases its shipments to the Asian nation.

Thailand is forecast to ship 600,000 metric tons of raw sugar to China in the first half of the year, according to Thai Sugar Trading Corp., the country’s largest exporter. That would be the most since at least 2005 and almost a fifth of all the sugar China will need to buy this year. Last year, its shipments to China totaled 277,572 tons of sweeteners, according to Thailand’s Office of Cane & Sugar Board.

“Thai sugar is quite competitive in Chinese markets thanks to its proximity, making Thai sugar prices attractive even when combining cheap freight cost with a high sugar premium,” Piromsak Sasunee, chief executive officer of Thai Sugar Trading, said by phone on May 16.

Chinese sugar imports will climb by 1 million tons to 3.1 million tons in the 2011-12 season started in October, the International Sugar Organization in London estimated in a report this month. Producers in Brazil, where adverse weather damaged and delayed crops, will have to discount their sugar if they are to compete with Thailand, Rabobank International said.

“Thailand was helped by the proximity to China and had the sugar available when the market was falling and the Chinese were buying,” Keith Flury, an analyst at the bank, said by phone from London yesterday. “Brazilian producers are having to discount their sugar to be competitive as traditional importers like Russia are well-stocked.”

Sugar Premium

China’s increased purchases of Thai sugar may have helped lift the premium buyers have to pay in the physical market, according to Rabobank. Thai raw sugar was trading at a premium of 1.8 cents a pound to the price of the July contract on ICE Futures U.S. in New York on May 19, according to Rolle, Switzerland-based Swiss Sugar Brokers. That compares with a discount of 0.1 cents a pound to obtain raw sugar from Brazil on May 18, according to consultancy SA Commodities in Santos, Brazil.

Most of the sugar being exported from Thailand to China will be of the raw variety, Thailand’s Piromsak said. Delays to the start of the crop in Brazil also contributed to an increase in Thai imports, he said. The sugar cane crop in Brazil’s main growing region was delayed by about a month because of rains and the pace of harvesting continues to lag behind last year’s, according to Juliano Ferreira, a broker at ICAP do Brasil Ctvm.

China and Indonesia are set to overtake Russia as the world’s largest raw sugar importers this season, according to Peter de Klerk, an analyst at Czarnikow Group Ltd., a London- based company which traded sugar in over 90 countries last year. Indonesian imports of all kinds of sugar will total 2.98 million tons, up from 2.9 million tons in 2010-11, data from the ISO show.

Sugar: Russian Imports

Russia imported 2.5 million tons of raw sugar in 2010-11, according to the Moscow-based Institute for Agricultural Market Studies, or Ikar. Almost 90 percent of the sweetener came from Brazil. The country’s imports this season will fall to 600,000 tons, the lowest in at least 50 years, as production there jumped due to favorable weather, Ikar estimates. That will leave producers in the South American nation looking for new buyers.

“Ample Russian sugar beet supplies have surprised to the upside and an abundance of beet sugar will dramatically reduce the call on imports from Brazil to satisfy Russia’s domestic refining industry,” Hussein Allidina, the head of commodities research at Morgan Stanley in New York, wrote in a report e- mailed yesterday.

Sugar: Imports Capped

Sugar output in Russia will climb to 4.8 million tons in 2011-12, up 60 percent from 3 million tons a year earlier, according to the U.S. Department of Agriculture. Production may be about the same level next season, with imports of the raw sweetener capped at 700,000 tons to 730,000 tons, Ikar estimates.

Brazil will still supply more sugar than Thailand to China this season, but the Thai share will increase “a lot,” Sasunee said. Sugar can be shipped from Thailand to China within two to three weeks, while it takes eight to 10 weeks from Brazil, according to Mitr Phol Sugar Corp., the largest miller in Thailand and the second largest shipper.

- Isis Almeida in London and Supunnabul Suwannakij in Bangkok at Bloomberg.