By now it’s hardly news that the crush in Australia and Brazil are suffering at the hands of Mother Nature. Too much rain in both countries has slowed down the crush, or halted it all together as is the case for some Ozzie mills, while transporting what supplies do exist has become so difficult that Brazilian and Thai premiums alike are benefiting.
So despite the assumption that there is still a sugar surplus, in the face of sugar prices that are quickly recovering from their previous bear status, supplies remain tight.
For those who are able to respond quickly, that can only mean opportunity.
Whereas Australia’s mills can’t supply the market as they would wish and when they would wish, instead Argentina’s mills want to take a stab at exporting to the global market. This week, 22 of the country’s 23 mills got together and decided that between them they could supply 100,000 metric tonnes to help bridge the global surplus gap. Argentina’s offering to the market may look a little small in comparison to the sugar exporting giants, but with Ramadan right around the corner and India’s festival season that will soon put pressure on export availability, the move is nothing but well timed.
Congrats Argentina! Perhaps you could teach India a little something about responding to market signals.
Argentina isn’t the only “non-traditional” exporter looking to get a little skin in the game, though. Bangladesh, who has increased its raw sugar imports—up 75% in 2011/12 to 1.57 million tonnes—is now looking to clear out its supplies before the local crush begins in November.
Local production has increased in recent years to 3.5 million tonnes, far above local demand for 1.5 million tonnes. Sugar refineries haven’t been running at full capacity however, and refiners expect that easing export restrictions that have been in place since early 2010 will help them boost production.
The commerce ministry is setting a 10% premium over the price of Brazilian raw imports as the selling price for exports. The state-owned Bangladesh Sugar and Food Industries Corporation has stock of 163,000 tonnes of sugar, with 80,000 tonnes of that imported. There’s more than enough to supply the country through Ramadan, they say, and with local prices low enough that they’ve had to sell sugar into the market at a loss, then there should be enough supplies among the mills to facilitate exports.
It’s not clear exactly how much supply would be available for exports, as each mill will have to be certified for availability on an individual basis before export certificates are granted. Obviously trading out Bangladeshi sugar for Brazilian isn’t going to make much of a dent in the market, but the hopes locally are that exports will help to generate more income to make sure that mills stay on track with their bank debts that have facilitated this massive expansion.
Yet if the key to exports is to ensure debt repayment, in a global market where prices have reversed their bear path in exchange for a bull one—at least for the time being—then setting prices at a 10% premium on Brazilian imports probably isn’t the most clever pricing scheme ever developed. The whites premium alone is US$155.65, or 24% of current white sugar prices, meaning Bangladesh’s commerce ministry might need to go back to math class.
Either that or someone’s about to make an absolute killing on the market brokering Bangladeshi sugar exports. Any takers?