Bullish Quota B result drives Thai raw sugar new crop premium to three-month high

Singapore — Thai HiPol raw sugar premium for March-May 15, 2021 spiked to a three-month high closing at 220 points over New York No. 11 March sugar futures on Aug.7, amid stronger than expected Thai Quota B tender results.

The first Thai Quota B tender for the 2020-21 season (October-September) for 12,000 mt of Thai HiPol raw sugar for March 1 to May 15 shipment was awarded to Sucden, at premium of 220 points over the NY No. 11 March futures.

The Quota B tender, which covers 400,000 mt of raw sugar contracts for a season is issued by several trading houses and sold on behalf of the Thai Cane and Sugar Corp, which has overall responsibility for pricing and selling raw sugar under this quota. Half of the amount is allocated to international sugar brokers and the other half to local millers for export.

The tender originally offered a total of 48,000 mt of HiPol raw sugar with shipment dates for March-May 15, 2020. The remaining 36,000 mt was not awarded as the bids submitted were deemed too low by the mills, trade sources said.

According to the tender report seen by S&P Global Platts, the second highest bid submitted into the tender for the March-May 15, 2020 shipment was at 175 points over the NY No. 11 March futures contracts for 12,000 mt. Five other trade houses had also submitted bids between 170-175 points over the March futures contract.

BUYERS PIVOT TO ALTERNATIVE ORIGINS

Analysts noted that Brazilian cargoes entering Indonesia in first-half 2021 should be on parity with Thai cargoes at 170-180 points FOB Thai equivalent over the NY No. 11 March futures contract, after accounting for freight and tax differential.

Indonesian refineries have switched their buying requirements to more price competitive origins, including Brazil, India and Australia, due to the lack of Thai raw sugar supply in the current 2019-20 season.

The dry weather condition in Thailand's major cane producing region for two consecutive years had led to a slower cane development, resulting in reduced sugar production.

Traditionally, Indonesia is the top importer of Thai raw sugar and accounts for approximately 70% of total Thai raw sugar exports.

"Traders are expecting fair values to be around 170-180 points, but it is hard to gauge given the tight production and export situation next season," a Hong Kong-based analyst told Platts.

THAI 2020-21 CANE PRODUCTION DOWN 5%-10%

Another Thai trader said that cane production numbers for 2020-21 had been adjusted lower from previous estimates due to a reduction in Thai cane acreage, after the completion of a recent crop survey in late-July.

"Many small farmers have turned from growing sugar cane to other crops like cassava and corn, which pay them a higher yield and use much less water," the trader said.

He added that the late monsoon rains and increased sucrose recovery will not be able to compensate for the decline in cane acreage.

Trade analysts are estimating 2020-21 cane production between 65 to 75 million mt, which is likely to be smaller than 2019-20's production at 74.9 million mt.