White sugar futures hit 13-month high – raws finally follow

(Agrimoney) – White sugar in London hit a 13-month high, helping spur a rally in raw sugar futures.

Squeezed supply, and unexpectedly high Chinese demand drove the premium for white, or refined, sugar futures to a contract high against raw, or unrefined sugar futures.

March white sugar futures in London touched $432.70 a tonne, up 3.2% on the day.

Chinese smuggling

Robin Shaw, sugar analyst at Marex Spectron, said the white sugar market had been supported by “the realisation that China continues to import a lot of white sugar unofficially”.

As Agrimoney.com reported last year, China sees large volumes of Thai sugar smuggled across its border, avoiding official customs channels.

“That’s removing a lot of Thai white sugar,” Mr Shaw said.

At the same time white sugar prices is India and Brazil, the worlds’ top growers, are above international prices, discourage exports.

Mr Shaw said that white sugar markets were absorbing the realisation that when the delivery begins on the March contract, next month, “the only origin that could be delivered in quantity would be central American […] so it’s a very thin market”.

‘Big surprise’

The strength in white sugar pushed the premium of refined sugar futures for March delivery to a contract high of over $107 a tonne over raw sugar in morning deals.

This is up from less than $80 a tonne on December 23.

“As a very rough rule of thumb anywhere over $80 covers the cost of refining,” Mr Shaw said.

“So everyone got a big surprise.”

Fund uncertainty

The strength in white sugar helped support a rally in raw sugar futures, which edged the premium down in afternoon deals.

Mr Shaw pointed to the continued uncertainty concerning the huge net-long position held by speculators in the raw sugar market.

The size of the long position has raised concerns that the market is susceptible to a sudden rash of profit taking or short selling, particularly if stop gaps are triggered.

Eyes on the funds

“Everyone knows that sugar would be a very bullish commodity if funds weren’t already very long,” said Mr Shaw.

“All eyes are on what the funds are doing next.”

March raw sugar was trading up 2.4% at 14.76 cents a pound in afternoon deals in New York, after bouncing off the 40-day moving average at 14.95 cents a pound.

White sugar in London was up 1.4% at $425.00 a tonne in late deals.