Sugar from Thailand, the world's second-biggest exporter, has been shipped against ICE contracts only five times since at least July 2008, according to exchange data. Traders are renewing deliveries after Thai stockpiles swelled, contributing to a global oversupply that's driven down US futures by about 17% since June amid a bumper harvest in Brazil.
"The forward outlook now depends on resolving this low-quality surplus sugar, which we think is likely to end up being delivered onto the exchange," Andrew Slinger, the managing director of Enerfo Sugar Ltd in Singapore, said in an e-mail on Aug. 26. He didn't participate in the survey.
Prices dropped 5.5% this month after an 8.6% decline in July and settled at 15.56 cents a pound yesterday. Futures reached a high of 18.81 cents in June. The discount for October versus March widened almost fourfold in the past six months and reached 2.02 cents on Aug. 26.
Stockpiles in Thailand are estimated to surge 36% to a record 4.9 million tonnes in the season ending in November, according to the US Department of Agriculture. Inventories accumulated after competition from Brazil reduced demand for the Southeast Asian nation's sweetener.
Exports declined 18% to 3.67 million tonnes in the first seven months from a year earlier, according to the Commerce Ministry. The delay in selling off stockpiles has hurt the quality and caused the colour to darken, said Piromsak Sasunee, chief executive officer of Bangkok-based Thai Sugar Trading Corp., the nation's top exporter. The country will produce 12 million tonnes of raw sugar in the 12 months from November compared with 11.29 million tonnes a year earlier, Somsak Suwattiga, secretary-general of the Office of the Cane & Sugar Board, said in an interview last month. It may have to carry forward about 900,000 tonnes of raw and white sugar for shipment next year, Mr Piromsak said by phone Aug. 26.
The world market will have a surplus of 1.3 million tonnes in the year starting October, a fifth straight glut, and a small shortage the year after, Lindsay Jolly, senior economist at the International Sugar Organization, said in Indonesia this week. Previous deliveries of Thai sugar into US futures contracts were concentrated in March 2011 through March 2012, according to exchange data, when harvests soared to a record. Since at least 2008 traders typically settled US contracts with shipments from Central and South America, the data show.
Open interest for October contracts in New York totals 433,450 contracts of 112,000 pounds, or 22 million tonnes, data compiled by Bloomberg show. The record for deliveries on the exchange was in October when Louis Dreyfus Commodities bought 1.45 million tonnes, according to two people at the time. About 500,000 tonnes of raw sugar from Central America may also be delivered, said Wayne Gordon, an analyst at UBS in Singapore. Thai shipments may be about 1 million tonnes, he says.
"You have a situation where a substantial amount of sugar needs to be sold before 2015," Gordon said. "The pressure is on because you see another reasonably large crop coming. Clearly you need more space by clearing the old stocks."