The contango in London No.5 white sugar futures is encouraging sellers to offer Thai white sugar in anticipation of buyers picking up bargains to store at destination, traders said Tuesday.
"There is some offering of breakbulk...We see some [producers] looking to sell sugar for March and April of next year," a source said, with a second saying the market structure through to March 2017 as the key incentive.
"The buyer is taking advantage of the carry in the VZ [October-December] spread," a second source said.
At 1058 GMT Wednesday, the front-month London October and December were trading in an $8.20/mt contango, at $542.30/mt and $550.50/mt respectively, and March 2017 was at $555.70/mt.
That structure enticed sellers into the market, traders said, with a raft of physical offers for white 45 ICUMSA sugar heard in the market for delivery over March 1-May 15, 2017, May 1-July 15, 2017 and July to September 15, 2017.
"Both the New York [raws] and the London [futures contracts] are in a slight contango -- the flat price is attractive to the buyer and you have an $8/mt carry," an analyst at Platts Analytics' Kingsman said. "But is it enough to carry at destination for three months?"
Trading sources broadly agreed that it was sellers who were driving the opportunity, hoping that buyers could pick up relatively cheap sugar now, pay freight to move it to its destination and hold it in storage until using it.
"There are a lot of sellers, more than any buying interest," the first trading source said, although sources did not rule out buyers being tempted by the relatively low price and the expectation that prices would increase in the coming months as the global sugar market heads into deficit.
White sugar tends to be shipped predominantly in containers, although a minority still moves as breakbulk.
Platts heard offers for Thai 45 ICUMSA break bulk white sugar at a premium of $22/mt over London March 2017 for delivery in the March 1-May 15 shipment window, with May 1-July 15 shipment offered at May plus $24/mt, and July 1-September 15 offered at May plus $26/mt.
