Strong uptick in longer voyage freight to support Thai raw sugar premiums

Singapore — Raw sugar traders are finding it unattractive to charter longer voyage vessels into Asian destination markets amid a strong uptick in freight rates, which could likely support cash premiums for regional Thai-origin HiPol raw sugar.

Average freight spreads in Q1 2021 between 50,000 mt South Brazil-Indonesia and 25,000 mt Thailand-Indonesia were at $23.09/mt, up by almost 30% year-on-year compared to the same period in 2020, S&P Global Platts data showed. Moreover, the freight spread reached a year-to-date peak of $30.80/mt on Feb. 25.

"The expensive freight from India and Brazil into Asia will likely be supportive of Thai cash [premiums for sugar]. We have talked to those involved in the freight market, and we don't think freight will cool off anytime soon," a sugar trader based in Singapore said.

The elevated freight on the Handysize and Supramax market can be attributed the remarkable gain in export volumes in the minor bulk trade segment. According to a report from Arrow Shipbroking, Supramax and Handysize vessels saw the greatest year-on-year change in Dry Bulk exports, up 8.7 million mt and 6.2 million mt respectively for the month of January. The same report also highlighted the minor bulk trade segment had the highest year-on-year absolute gain of all dry bulk commodities, at 10.3 million mt in January, as compared with grains at 8.7 million mt, and iron ore at 4.6 million mt.

Weak cane sugar production in Thailand for the 2020-21 marketing season has affected the country's ability to price competitively vis-à-vis Indian and Brazilian-origin raw sugar. As a result, regional demand for Thai raw sugar have dwindled as importers switched away from buying Thai sugar since the beginning of the marketing season.

According to Platts data, Thai HiPol spot April loading cargoes are currently assessed at 215 points premium over the New York No. 11 May futures, despite shedding over 10% since the March futures expiry on Feb. 26.

However, some sugar traders believe that Thai HiPol raw sugar premiums could be supported as higher freight rates from both India and Brazil to Asia Pacific region will make it unattractive to move sugar from those origins.

"Indian versus Thai freight parity to Indonesia is very high at around 70-80 points, so the only thing supporting Thai [cash premium] is the expensive freight from other origins," a Hong Kong trader told Platts.

LONGER TERM

A delayed harvest in Brazil for soybeans due to weather disruptions in January has led to a historical high shipment delay at the country's grain ports.

Around 160 Panamax, Supramax, and Handysize ships were waiting at Brazilian grain ports for two to four weeks on average, exacerbating tonnage shortage in the Pacific for Panamax and Supramax ships, a report by shipbrokers Howe Robinson said.

Sugar traders said that the market expectation of higher freight cost in first half of 2022 for Brazilian raw sugar cargoes was one of the leading factors for several trading houses to bid higher cash premiums in the recent 2021-22 Quota B raw sugar tender held on March 2.

Traders who have participated in the Quota B sugar tender shared that the uncertainty over the freight spread due to volatility in shipping markets has made it challenging to price Brazilian sugar into key import markets like Indonesia.

The current logistical constraint in Brazilian ports to export soybeans and corn could possibly have a spillover effect on sugar exports in second half of the year, resulting in a large carry over stock into 2022 that could again compete with Thai-origin raw sugar, market sources said.

The uplifting trend in the Dry Bulk market to continue into Q2 as the upcoming EC South America soybeans harvest is expected to produce a bumper crop. Soybean exports are also expected to be delayed due to the 2.5 weeks delay in planting in 2020.

The Platts Supramax APSI 5 regional weighted average Index which launched in February this year, was assessed at $24,695/d on March 22, up from $10,834/d in Feb. 1, an increase of 127%. The Platts Panamax KMX 9 weighted average Index was assessed at $27,767/d on March 22, compared with $10,683/d in the beginning of January, an increase of 159%.

"Indonesia usually buys less Brazilian sugar from March to May as it's the inter-crop season and prices are not as competitive. But if logistics continue to be an issue, things might change," a raw sugar trader told Platts.