Huge ICE sugar delivery sparks worry over China demand, India crop delays

October 2, 2020
Reuters |

NEW YORK (Reuters) - The staggering size of the most recent raw sugar delivery by market players holding futures contracts in New York, a record 2.62 million tonnes, has traders concerned that demand is fading in important markets like China.

Traders take monthly delivery on expiring futures contracts they hold in commodities like coffee or sugar. When they deliver to the exchange, in this case ICE, it often means there was not enough demand from end-users like candy makers or soda producers.

This month, Chinese commodities trading firm COFCO sent the greatest volume of sugar to the exchange, 1.25 million tonnes. To traders, that was a signal that the firm did not have enough demand to sell that crop to Chinese refiners that process the sugar.

“COFCO delivery may reflect less than expected China buying,” said a Chicago-based sugar broker.

Raw sugar futures are up 48% from the lows seen in mid-April, helped by renewed Chinese demand after a dramatic sell-off in the first weeks of the coronavirus pandemic. But prices were also driven by so-far unfounded expectations that Beijing would boost sugar import quotas.

“The market was expecting a partial liberalization of China import policy, which didn’t happen,” said Claudiu Covrig, sugar analyst at S&P Global Platts.

COFCO had prepared for a strong shipping season out of Brazil, having turned its terminal in that country’s large Santos port from moving grains to moving sugar.

In addition to worries about Chinese demand, the delivery means Brazilian sugar producers are sitting on huge stocks after a strong production season.

Platts estimates current stocks in Brazil’s center-south at 11.1 million tonnes versus 8.8 million tonnes at this time last year. Covrig said deliveries of Brazilian sugar will help to clear some storage space.

The large delivery also indicates some players might be expecting delays to India’s sugar crop due to rains and labor issues caused by the coronavirus pandemic. This month’s delivery included 2.61 million tonnes of Brazilian sugar, a signal of stockpiling ahead of the Indian season.

“Some of the receivers are betting on a delay out of India,” said another U.S.-based sugar broker.

He added that the La Nina weather phenomenon, which changes patterns of rains in several regions in the world and is said to have become active, could be negative for Brazil’s 2021 cane production and some players could be stockpiling fearing falling production.