White sugar premium jumps on demand, decline in Brazil’s real

(Reuters) – The premium of refined sugar over raw sugar futures vaulted to a near six-month peak on Tuesday, signaling potential relief for global white sugar producers from weak margins that hit multi-year lows last month.

The premium of white sugar over raw sugar traded on ICE Futures LSU-SB1=R jumped as much as 6.8 percent to a high of $83.69 per tonne during the day’s trade, fueled by what traders said was a combination of demand and a decline in the Brazilian real to its weakest against the U.S. dollar in nearly 11 years.

The white sugar premium has recovered amid a “recent spate of Chinese buying,” said Michael McDougall, head of the Brazil desk for Societe Generale in New York.

Demand from China, where government stockpiling has driven high local prices and a strong import appetite in the last year, would be welcome relief the world’s sugar producers.

Refiners are expected to have dialed back output as inventories swelled and prices sank. The white sugar premium sinking below $50 a tonne last month, its weakest since September 2009.

The Brazil’s real losses against the dollar have further fueled refined sugar’s recovery, weighing on prices of raw sugar more than on prices of white sugar. Brazil, the world’s largest producer and exporter of the sweetener, largely produces raw sugar.

This has prompted a “stampede by millers to hedge their dollar denominated exports,” said Nick Penney, a senior trader with Sucden Financial, in a market note.

The droves of selling brought benchmark raw sugar futures to a six-year low of 12.98 cents a lb, exaggerating the increasing price difference between the two types of sugar