Sugar trade deal strikes big blow to U.S. refiners, candymakers

(Reuters) – U.S. regulators’ decision to approve a controversial trade deal with Mexico has struck a major blow to sugarcane refiners, who will struggle to source supplies, and confectioners, who will pay higher sugar prices.

The U.S. International Trade Commission on Thursday rejected challenges from Louis Dreyfus Commodities’ Imperial Sugar and AmCane Sugar LLC, pushing ahead an agreement that sets floor prices and caps on imports from Mexico.

The deal rescinds the free sugar trade access for the two countries through NAFTA and ends a year-long spat over the $6 billion U.S. market.

The ruling is a victory for U.S. sugar beet growers and companies who complained a year ago that cheap Mexican sugar is flooding the market. The United States is a net importer of sugar and Mexico is one of its largest suppliers.

But for refiners, the deal will restrict raw-sugar supplies, and the price floors may crimp their margins.

Tighter margins due to higher costs will put refiners at a “substantial disadvantage” to sugarbeet processors and Mexican millers, said Frank Jenkins, president of JSG Commodities in Norwalk, Connecticut.

Refiners’ margins will be below “a living wage,” he said.

Imperial and AmCane did not respond immediately to requests for comment. They have also asked the U.S. Department of Commerce continue its probe.

An Imperial executive had previously said an earlier version of the deal would threaten refining capacity.

Other U.S. cane refiners that include Domino Sugar owner ASR Group, a Cargill Inc. and Louisiana Sugar Growers and Refiners’ Louisiana Sugar Refining, and U.S. Sugar Corp also source raw sugar domestically.

Restrictions on supplies will also help maintain the U.S. sugar price’s premium, even as world prices languish at six-year lows amid a global oversupply.

“Prices are up this year, and they’re going to be up 20 percent next year,” said Kirk Vashaw, Chief Executive Officer of Spangler Candy Co., a sweets manufacturer in Bryan, Ohio, and with operations in Mexico.

One supplier last week hiked prices on a long-term contract, he said. Spangler, which makes Dum Dums lollipops and some 500 million candy canes a year, uses more than 20 million pounds of sugar each year.

U.S. domestic raw-sugar prices on ICE Futures U.S. finished flat on Thursday, recouping all its 4.5-percent losses afer the vote. U.S. prices had been dropping due to soaring imports from Mexico and a global supply glut