Wilmar Makes Another Big Sugar Purchase; Focus Still on Brazil

By Carolyn Cui 

Wilmar International Ltd. has emerged as the sole buyer of nearly 600,000 metric tons of raw sugar on the ICE Futures U.S. Exchange against the March contract, in a purchase worth $192 million and marking the fourth delivery in a row taken by the Asian commodity trade house.

In New York, prices for raw-sugar futures for May delivery rose 0.2% to $14.39 a pound on Tuesday.

The ICE on Tuesday published the details of the delivery, which showed one single buyer scooped up a total of 11,791 contracts that expired a day earlier. Wilmar was the receiver, according to brokers who are familiar with the purchase.

Last year, the Singapore-based firm had spent over $1 billion in three deliveries of raw sugar through the ICE exchange. Wilmar couldn't be reached for immediate comment.

The sugar for delivery would come from Guatemala, El Salvador, Costa Rica and other Central American countries. ADM Investor Services, EDF Man Capital Markets Inc. and J.P. Morgan Securities were among the firms that were on the hook to ship the sugar to Wilmar, according to the exchange.

"The fact that somebody did step up and take it was taken by the market as a positive sign, but the delivery is sort of a more visual sign of normal demand offtake," said Michael McDougall, director of commodities agency at Société Générale.

Sugar prices have been on a roller coaster this year. After having dropped as much as 18%, sugar prices rebounded 15% in recent sessions. Last Tuesday, sugar futures had the biggest one-day gain since 1988.

Then on Monday, the last trading day for the March contract, the spread between the March and May contracts rallied in the last minute, turning the difference from a discount to a premium, as 400 lots of sugar were traded, brokers said.

All eyes are now on Brazil, the world's largest raw sugar exporter. Analysts are closely watching the weather in the country and its impact on the cane production.

"We have the impression that estimates are going up slightly on the basis of good rains and the probability that relatively high prices will have had a beneficial effect on yields," wrote analysts at Marex Spectron in a note.

Globally, the International Sugar Organization increased its estimate for the world deficit in the 2015/2016 crop from 3.5 million tons to 5 million tons.

It is unclear what motivated Wilmar's purchase, but brokers said the company is likely to profit from Asia's growing demand and reduced production. Outputs from India and Thailand are both estimated to fall this year. But official sugar imports into China fell 23% in January, raising questions about the underlying demand for the sweetener.

Taking physical delivery of sugar from a commodity exchange involves logistical and financial challenges, said James Liddiard, senior vice president at Agrilion Commodity Advisers in New York.

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. In recent years, only a few big trade houses were able to take delivery.

"It's a different game," he said.

In other markets, Arabica coffee for May dropped 0.3% to close at $1.1475 a pound, cocoa for May fell 0.7% to settle at $2,933 a ton, and frozen concentrated orange-juice futures for May dropped 0.8% to close at $1.2565 a pound. Cotton futures lost 0.5% to 56.21 cents a pound.

Write to Carolyn Cui at [e-mail]

(END) Dow Jones Newswires

March 01, 2016 14:49 ET (19:49 GMT)

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