White sugar premium seen buoyant before May contract expiry

LONDON - The white sugar refining premium is set to remain buoyant before the May expiry because of strong Chinese and pre-Ramadan demand and tight global supplies, traders said.


LONDON - The white sugar refining premium is set to remain buoyant before the May expiry because of strong Chinese and pre-Ramadan demand and tight global supplies, traders said.

Dealers quoted the May-May whites-over-raws premium, a measure of the profitability of refining, at about $101 a metric ton on Wednesday, up from $92 at the most recent expiry of the March contract on Feb. 29.

With four weeks to run before the May whites expiry on April 15, expectations of buoyant Chinese demand for smuggled white sugar, combined with brisk business before Ramadan, the holy Muslim month of fasting, augur well for continued strength in refining premiums.

Ramadan starts in early June and will run for 30 days.

Traders said that margins for smuggling white sugar into China remained high. Chinese domestic sugar prices were quoted at $750-$800 a metric ton, while sugar can be acquired on the world market at about $450 a metric ton on a cost-and-freight basis.


Much of the sugar smuggled into China crosses the border from Myanmar, traders said.

"China has shifted from being a raw sugar buyer to a white sugar buyer," one senior European trader said, referring to recent increased vigilance of raw sugar import licences.

"The whites premium will be extremely high."

Recent downgrades in Chinese domestic sugar production, due to frost damage in the main growing areas of Guangxi, also signalled strong Chinese demand for smuggled sugar.

Analyst Green Pool has made a downward revision to its forecast for this year's Chinese sugarharvest to 9.2 million metric tons, from 9.5 million previously.

Traders noted that the strength in the whites premium had coincided with a rally in ICE rawsugar futures.

"The sugar market overall is trading higher on recent downgrades to the Asian cane crop, northeast Brazil and others," said Green Pool director Tom McNeill.

Benchmark ICE raw sugar futures hit the highest level in 2016 this week, bolstered by upward revisions in global sugar deficit forecasts by Rabobank and F.O. Licht.


"That the whites premium has increased as the raws price has increased (not shrunk) is a positive pricing signal for white sugar," McNeill said.

ICE raw sugar futures traded at 15.23 cents a lb on Wednesday, compared with 13.15 cents at the time of the March whites expiry.

"We've also quite often seen the white premium increasing into expiries. So that's my main logic in saying it (the premium) should be supported overall," McNeill said.

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