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U.S. sugar liquefiers transform sweetener market as prices rally

NEW YORK - A small, but flourishing U.S. industry of liquefied sugar makers is playing an outsized role in fueling the longest rally in years in prices in one of the world's biggest sweetener markets.

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Reuters Photo

NEW YORK - A small, but flourishing U.S. industry of liquefied sugar makers is playing an outsized role in fueling the longest rally in years in prices in one of the world's biggest sweetener markets.

U.S. raw sugar prices have jumped 7.3 percent this year, hitting 29 cents per lb last month, their highest in nearly four years and widening the premium over global prices to nearly 14 cents per lb, as supplies in the 11 million-tonne industry have shrunk to their lowest in four years.

Traders have attributed the tighter availability to changes to import flows from Mexico after a controversial trade pact with the top supplier into the United States set quotas and minimum prices. Shipments from Mexico fell by nearly one-third after the agreement, according to U.S. government data.

The growth of so-called "melt houses" that make liquefied sugar, a lower-cost sweetener popular with food manufacturers for use in ice cream and coatings, and rising demand from refiners have also accelerated the pace of gains, traders have said.

While they are not a new presence in the restricted U.S. market, their expansion in recent years has intensified competition for raw material with the traditional refiners like ASR Group's Domino Sugar and Louis Dreyfus Commodities BV's Imperial Sugar, industry sources said.

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One such example is Mexico's largest private cane mill, Zucarmex, which opened a liquid and dry sugar distribution station in Tucson, Arizona, in 2014.

"The sugar going to liquefiers and small-scale refiners is a bigger portion now because Mexico has a smaller quota," said Kevin Combs, global sweetener specialist with McKeany -Flavell in Oakland, Calif.

The rising tension highlights how the U.S. growers' dispute with Mexico over alleged dumping has had unintended consequences for the sugar industry and for companies like Imperial Sugar, which doesn't have its own domestic raw supplies.

USDA data analyzed by Reuters show that about one-third of sugar from Mexico headed to the traditional cane refiners' ports since the 2015/16 marketing year began on Oct. 1, 2015. That is their smallest share in four years.

The rest goes to repackers and liquefiers, trade sources said. That sector includes privately owned companies like CSC Sugars, D&I Pure Sweeteners, and Sweetener Supply Corp.

That compares with just over half in 2014/15 and about two-thirds in 2013/14, according to the data.

The growing divide and rising prices will likely stir the debate over the impact of the trade pact, which is opposed by the Sweetener Users Association (SUA), which represents sugar buyers.

The group said the trade agreement is causing market "distortions" exacerbated by the non-GMO trend, according to a letter to the U.S. Department of Commerce and Department of Agriculture filed by the government on Monday.

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It also threatens the fragile balance of a government support program through which marketing allotments and import quota are doled out by the Department of Agriculture (USDA).

The refiners are pressing for an increase to the quota for raw sugar by the USDA.

 

GROW LIKE IT'S 2008

Many melt houses have set up shop in the United States or expanded operations over the past eight years, aiming to secure feedstock after a tweak to NAFTA trade agreement opened up access to lower-cost sugar from Mexico.

Some can use both estandar - or "standard" sugar from Mexico which is higher quality than raw sugar - and refined sugar to produce cane sugar products more efficiently and sometimes at a lower cost alongside the traditional refiners.

The refiners also make liquefied products.

The market conditions changed three years ago when U.S. growers accused Mexico of dumping sugar in the United States and agreed in 2014 to a cap on prices and quota on imports.

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To be sure, while total supplies have fallen, some say there is still plenty of sugar to meet demand and the concerns of the buyers are overblown.

Still, the pressure on supply has likely been exacerbated by the shift by food manufacturers to use more cane and shun ingredients made with genetically-modified ingredients (GMOs) like beet sugar and corn syrup.

"The cane refiners are not getting the sugar like they used to. (They) are losing out," said a U.S. broker.

 

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