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Potential Indian sugar exports, firm futures weigh on Thai Quota B premiums

Highlights

Higher flat price to encourage Indian sugar exports

May 1-July 15 shipment awarded at 150 points over NY No. 11 May futures

Platts Analytics sees Thai cane production at 95 mil mt, up 5.6%

Singapore — Thailand's third Quota B raw sugar tender on May 12 saw lower average cash premium bids for the 2021-22 marketing season, with trade sources citing expectations of Indian sugar exports for the next season and stronger international futures prices putting a pressure on Thai sugar premiums.

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According to a tender report seen by S&P Global Platts, the average bids for 23,333 mt of HiPol for March 1-May 15, 2022 shipment period stood at 96 points over the New York No. 11 March 2022 contract, compared to 101 points in the previous tender.

March 1-May 15 shipment was not awarded to any trade house as bids were deemed too low, while the higher bidder was Tereos at 125 points. Thai sugar producers were heard to be targeting cash premiums at 135 points, similar to that traded in the first and second Quota B tenders.

Thai Quota B tenders cover 400,000 mt of raw sugar contracts for a season, and typically attract bids from several trading houses. TCSC has overall responsibility for pricing and selling raw sugar under this quota.

"The futures rally will encourage India to export [sugar] since they are usually flat price sellers. I think there could be Indian replacement which means competition for Thais," a Singapore-based sugar trader told Platts.

Even though Indian prices are not competitive at the moment, another Hong Kong trader said that the higher flat price would mean that markets may likely "start to see Indian sugar offers for next year."

However, the resurgence of COVID-19 cases in India will create logistical challenges and potentially impair the demand for Indian-origin sugar. The lack of truck availability coupled with labor shortages have also raised concerns over supply chain bottlenecks within the country.

Subdued demand in domestic markets have also put pressure on domestic markets recently. As a result, market sources noted that it has been challenging to obtain prompt shipment sugar offers and freight rates out of India, and even much more difficult for next season's sugar.

On the other hand, 21,600 mt and 14,400 mt of Thai HiPol raw sugar for May 1-July 15 shipment was awarded to Louis Dreyfus and ED&F Man, respectively, at 150 points over the New York No. 11 May 2022 futures contract.

Uncertainty over the freight spread as volatility in shipping markets have also made it challenging to price Brazilian sugar into key destination markets like Indonesia. Comparing both freight spreads and duty differential between Brazil-Indonesia and Thailand-Indonesia, market sources said that Thai cargoes for May 1-July 15 shipment should be between 170-180 points.

Freight spreads between Brazil-Indonesia and Thailand-Indonesia is at $25.50/mt as of May 12, while reaching a year-to-date of $31.50 in March, compared to just $15.15/mt in the beginning of the year, Platts data showed.

"There are many factors like Indian exports and improvement in Thai sugar cane production for next season. All these might be bearish for Thai cash and maybe that is why traders are showing lower bids," a raw sugar trader said.

Platts Analytics is estimating higher Thai sugar cane 2021-22 production at 95 million mt from 90 million mt previously, which translates to approximately 10.5 million mt of sugar production due to better rains and weather condition in the country.