Thai sugar premiums jump up to 22% this week as oil plunge drags down global sugar futures

Singapore — Thai raw and refined sugar cash premiums jumped 5%-22% since the start of the week as the plunge in oil prices dragged down global sugar futures, leading traders to factor in higher physical premiums over flat price, S&P Global Platts data showed late Thursday.

Thai 45i refined sugar in containers for prompt May loading hit its highest year-to-date level at a premium of $88/mt over the ICE London No. 5 August futures contract on Thursday, compared to just $21/mt in early 2020.

A sharp year-on-year decline in Thai sugar supply amid widespread drought in the country also contributed to the boost in physical premiums.

"There is not enough sugar in Thailand for exports this year due to bad weather. With [sugar] futures falling to such [low] prices, sellers can only raise cash premiums to make flat prices more reasonable," a trader in Singapore said.

"There are few offers in the intertrade market and even the [Thai] producers do not have any excess sugar to sell, so it is extremely difficult for us to secure any Thai sugar nowadays," another trader said.

Global sugar futures were hit by the dive in oil prices amid bearish sentiment that sugar producers could potentially divert more cane supplies to sugar production instead of ethanol.

CONCERNS OVER SURGE IN BRAZILIAN SUPPLY

Several traders expressed concern that Brazil's cane harvest starting in May could lead to an increase in global sugar supply, thus weighing down on global sugar futures even further.

Brazil is one of the world's largest sugar producers, with sugar mills in the country having the flexibility to convert sugar cane into either sugar or ethanol.

The lower crude oil prices have reduced the appeal of ethanol against the sweetener, which would thus incentivize Brazilian mills to produce more sugar and less ethanol.

Adding to the bearishness, Brazil's two largest distributors declared force majeure end-March amid the coronavirus outbreak, as they were unable to sell scheduled cargoes and needed to lower their monthly ethanol purchases due to a reduction in the fuel's demand, Platts reported earlier.

"Brazilian producers have maximized sugar production this season and they have hedged the majority of the sugar already," another Singapore-based trader told Platts.

Brazil's sugar-ethanol mix is currently at around 44%-46%, up 11 percentage points from last season, and could potentially surpass 47% once the harvest situation gains clarity in August-September, according to Platts Analytics.

THAI PREMIUMS LIKELY SUPPORTED IN Q2, Q3

Even as the coronavirus pandemic reduces short-term sugar offtake amid regional lockdowns, Thai cash premiums have shown no signs of softening since January.

Traders said physical premiums for both raw and refined sugar will remain bullish in Q2 and Q3 2020.

The lack of supply of Thai sugar is one factor that will be supporting physical premiums, with buyers scrambling to look for cheaper alternative origins.

Indian raw and refined sugar, for example, has gained traction among major buyers from Indonesia and China. Indian 45i refined sugar for prompt loading is priced at premiums of around $30/mt over London No. 5 August futures, basis FOB west coast India, which is at a $60-$70/mt discount to Thai refined sugar.

"My buyers who usually purchase Thai sugar have switched their requirements to other origins this year. It is obvious because the cheaper price sells itself," a Hong Kong-based trader said.