Big Order Sweeps Sugar Market

(Wall Street Journal) – Wilmar International Ltd. has bought 1.2 million tons of raw sugar on the ICE Futures U.S. Exchange against the October contract, the third delivery taken by the Singapore-based commodity company in recent months, bringing the total of this year’s purchases to more than $1 billion, traders and brokers said.

In New York, prices for raw-sugar futures jumped 3.4% to 12.88 cents a pound on Wednesday. Sugar prices were lifted by a stronger Brazilian real against the U.S. dollar, as Brazil is the world’s largest sugar producer.

Wilmar emerged as the single buyer of $346 million of sugar at the end of Wednesday, as the Sugar No. 11 futures contract expired. This followed the company’s $547 million purchase for 1.9 million tons of sugar in May—the largest exchange purchase on record—and a $125 million order in July. Wilmar couldn’t be reached for immediate comment.

“The fact that we saw the same trading house that took sugar in the past two deliveries is buying again represents a bullish anticipation for demand, especially from China,” said Bruno Lima, head of sugar at INTL FCStone in Brazil.

Sugar imports in China through August are up 50.7% year-to-date compared with the same period last year, according to Chinese customs data. The largest sugar importer in the world, China is dealing with slowing production even as consumption grows.

All the October sugar will be sent from Brazil, and be delivered by trading houses including Alvean, Bunge Ltd., Noble Group, Louis Dreyfus Group and ED&F Man Holdings Ltd., according to two brokers who are familiar with the order.

It is unclear what motivated the purchase, but brokers said Wilmar is likely betting on Asia’s growing demand for sugar. The company will be situated to benefit from the difference in prices for sugar between the U.S., where prices are lower, and Asia, where they are higher.

Globally, the glut in the sugar market is dissipating. Several trading houses are anticipating sugar prices to rise for the year starting Oct. 1 and ending Sept. 30, 2016, as the International Sugar Organization expects sugar consumption to outstrip production during this period by 2.49 million metric tons after five years of surplus production.

INTL FCStone expects global sugar demand to exceed production by 3.8 million tons in the marketing year starting Oct. 1, a shift from the previous year’s surplus output at 900,000 tons.

At the ICE exchange, sugar prices have rebounded 15% from hitting a seven-year low in late August.

“The sentiment around sugar has changed dramatically,” said Nick Gentile, managing partner at New York-based NickJen Capital Management & Consulting.

James Liddiard, senior vice president at Agrilion Commodity Advisers in New York, said large sugar deliveries, once a “last resort” for trade houses, have become more common in recent years as consolidation in the industry has made it easier for big players to economically take on big deliveries.

Unlike other commodities where goods stay put and ownership is transferred between parties on paper, with raw sugar the receiver must call vessels to ports—sometimes in several locations around the world. The cost of moving the sugar can be expensive and the receiver has no choice about where that sugar will come from.

“It’s best left to the big players to take delivery,” Mr. Liddiard said.