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Premium of Mediterranean sugar prices to Northwest Europe falls to 8-month low

London — S&P Global Platts assessed the average Mediterranean domestic delivered sugar price at Eur445/mt Friday, at a Eur3/mt premium to the price for Northwest European sugar, or an 8-month low, as raw sugar imports were seen 54% up on the year.

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The March New York Raw Sugar contract currently trades at 12.65 c/lb ($278.90/mt). At Eur246.80/mt, and even with "top end" refining costs of Eur100/mt, there is potential to make to make significant margins when selling into premium destinations of Mediterranean Europe such as southern Italy, where prices have been heard up to Eur470/mt.

With a large number of European refineries based in the southern regions, supply out of these refineries could mean additional sugar on the Mediterranean market, a London based analyst said, and this would explain the narrowing of the premium, which has been stable at between Eur20-30/mt. The premium has been known to represent the freight cost from north to south Europe, a Paris-based broker confirmed, but has been altered by the changing trade flows.

Imports under preferential agreements total roughly 330,000 mttq for 2018-19 (October to September), according to the latest figures published by the European Commission. This represents a rise of 54% on the year, highlighting the changing dynamics in the European sugar market, with one source saying that cargoes had been heard heading to Italy, Spain and Bulgaria in recent weeks.

After the removal of production quotas in October 2017, domestic delivered prices halved from Eur600/mt to Eur300/mt. This changed the trade flows of southern Europe, as it was no longer viable to import raw sugar to refine, given the plentiful supply of sugar and low prices.

However, European domestic prices have rallied since November, on the back of a fall in annual European production as the dry, hot summer of 2018 impacted sugar beet yields.

-- Thomas Wigglesworth, thomas.wigglesworth@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com

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