Strait of Hormuz disruptions threaten Arabian Peninsula's sugar supply chains

Rising energy costs and shipping disruptions on the Strait of Hormuz are beginning to strain global sugar supply chains, with market participants warning that prolonged restrictions could hit both regional availability and international refined-sugar flows.

The Arabian Peninsula serves as a vital gateway for global sugar trade, importing approximately 10% of the world's raw sugar through the Strait of Hormuz each year and exporting around 5% of global refined sugar via the same route, underlining the Strait's role as a two-way artery for the global sweetener market, according to sugar consultant Michael McDougall.

A sugar trader noted that the Middle East conflict has thrown uncertainties into the sugar trade flow by restricting raw sugar supplies from origin markets through the Strait of Hormuz, inflating shipping/insurance costs, and threatening operations.

"The longer there is a blockade, the worse the problem will get, but the refineries still have some stock," the trader said. "Still to be seen the impact, but costs are definitely up in terms of logistics with fuel surcharges, so for sure sellers will be looking to recover these," the trader added.

Sugar refiners squeezed by weak margins

Even before the conflict, Middle Eastern sugar refineries had been running below capacity due to lower profitability, and with the new escalation, the sector is more exposed to new shocks, another sugar trader said.

Another trader said that with crude and bunker fuel prices elevated, production costs are rising at a time when many sugar producers are already losing money, increasing the likelihood that refiners will slow throughput further or pass costs along the chain via higher premiums.

"Those shipping costs are also climbing as vessels reroute or face congestion and war-risk pricing, affecting flows from major raw sugar origins into Gulf refineries, and onward exports into Asia and Africa, where Gulf refiners often supply industrial and consumer demand," the trader said, referring to the Persian Gulf region.

Another trader said that the Gulf refineries in Dubai, Iraq, Bahrain and Iran play a significant role in the regional white sugar trade, noting that sugar flows through Hormuz are now severely restricted, and refiners are already suffering operational constraints. "This could mean afloat raw sugar cargoes looking for new buyers but also a draw-down in regional white sugar stocks," he said.

In a recent interview, Jamal Al-Ghurair, the managing director of Dubai-based Al Khaleej Sugar, owner of the world's largest port-based sugar refinery, noted that the refinery has around two years of raw sugar reserves if it is not refined and exported outside the Gulf region. He said that the decline in white sugar prices is largely due to excess global supply from major producers such as Brazil and India. European sugar prices have also been very low amid record production and weak demand.

Platts assessed white sugar EXW Northwest Europe at Eur450/mt on March 12, while DDP North Italy and DPP UK were both assessed at Eur500/mt.