Mexican bag concerns send premiums for nearby white sugar soaring

The premium paid for nearby white sugar onfutures markets has rocketed, despite a growing glut, and traders said this was largely due to Mexican exporters struggling to obtain the bags stipulated by delivery requirements.

The premium of the Liffe August white sugar contract over October has shot up to around $9.50 per tonne LSU-1=R on Tuesday from a discount of around $4 in mid-May.

“The August London is like a beacon of bullishness in a sea of bearishness,” a European trade source said, referring to a mounting surplus of sugar now entering the international market, mainly from Brazil, that drove ICE raw sugar futures to a three-year low of 16.37 cents per lb on Tuesday.

As well as concerns over delivery of Mexican sugar, which were not universally shared by European traders, buying in May linked to the Muslim festival of Ramadan had contributed to the surging premium for nearby supplies, traders said.

Mexico produced such an unusually huge surplus of sugar this year that it has had to turn to the international market and made the first delivery of Mexican refined sugar in more than 20 years against the expiry in mid-April of a Liffe futures contract.

The delivery against the expiry of the Liffe May contract of 267,650 tonnes included 30,000 tonnes of Mexican sugar.

But traders this week talked of “challenging” and “nightmarish” shipments from Mexico due to reported logistical problems, such as inadequate quality of bags that might make the sweetener impossible to deliver to buyers.

“People are nervous about being caught with non-deliverable sugar,” another European trader said.

Javier Pedraza, an analyst with Mexico’s national sugar council CONADESUCA, denied that there were known delays to shipments including those from port terminals in the country’s eastern Veracruz state, a conduit for white sugar exports.

“No logistical problems have been reported,” said Pedraza. “The production of sugar is proceeding normally.” He added that the council was unaware of any specific bottlenecks for shipping out of ports in Veracruz state.

Other European traders said Mexican logistical problems were exaggerated, as there had been sufficient time to import bags from Europe to Mexico under the terms of the delivery.

INNER-LINED BAGS

There are only two factories in Mexico that can produce the 160 gm inner-lined bags that are required for delivery, a European trade source said.

The Mexican sugar for delivery is currently packed in either 80 gm laminated pp bags with no inner liner or in vast “super sacks” which do not meet delivery specifications either, the source added.

“There has been some talk of shipping bags from Europe, but it seems that even when the bags are available, it is quite slow to repack the sugar,” the source said.

Traders were nervous over prospects for mills in Mexico to deliver sugar on time, and one source reported complaints that sugar was arriving “hot” at the ports, meaning that it was heating up in trucks while they waited to discharge.

This could lead to “caking” or lumpiness of the sugar.

“The mills are optimistic that they can speed up loading logistics in general, but there is a lot of competition for warehousing and berths at the ports,” the source said.

The Mexican sugar is finding markets in West Africa and in the Middle East and North Africa, muscling into markets for 150-ICUMSA (medium quality) Brazilian white sugar, traders said.

European traders believe some 500,000 tonnes of sugar may have been booked for destinations beyond the United States.

Some traders say Mexican mills may want to keep sugar back in case U.S. prices pick up in the new crop year.

But others doubt this because Mexico is likely to have another big crop next season, meaning that mills will want to lock in sales sooner rather than later.


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