New York—Thailand's first 2021-22 Quota B raw sugar tender held March 2 was awarded to Louis Dreyfus at a 135-point premium to the New York No. 11 March futures contract, surpassing market expectations and pointing to bullish sentiment for Thai new crop sugar.
The tender was for 48,000 mt of Thai HiPol raw sugar for March-May 15 shipment. The Quota B tender covers 400,000 mt of raw sugar contracts for a season that are sold on behalf of the Thailand Cane and Sugar Corporation or TCSC, which has overall responsibility for pricing and selling raw sugar under Thailand's quota system.The cash premium across the 12 trading houses that participated in the tender averaged 92 points over the NY No. 11 March 2022 contract, almost 40 points lower than the award level.
However, six of those trading houses bid above 100 points to the contract, while the two lowest cash premium bids were at 45 and 57 points, according to the tender report seen by S&P Global Platts, pointing to a wide disparity in the market view of Thai sugar prices.
Market sources said expectations that freight costs for Thai and Brazilian raw sugar cargoes moving to Indonesia in first half of 2022 would be at parity was driving those traders who bid above 100 points.
Indonesia is one of Asia's largest importers of raw sugar and in the previous season mostly covered its requirements with purchases from Brazil, Thailand, India and Australia.
"We made a couple of assumptions here: If we assume Brazil raw premium remains close to flat and the freight spread between Thais and Brazil into Indonesia in the low $20s/mt, then bidding above 100 points is reasonable," a Singapore-based trader said.
UncertaintyHowever, the trader added there was uncertainty over the freight spread as volatility in shipping markets has made it challenging to price Brazilian sugar into key destination markets such as Indonesia.
A trader in Hong Kong said India VHP raw sugar should ideally be the most competitive in H1 2022, however, this had not been factored into the tender prices.
India typically ramps up exports in the first half of the year ahead of monsoon season in its cane-growing areas that begins in June.
"If the Indian government provides subsidies, India [raw sugar] should be the cheapest into Indonesia, but that's not being factored into the tender price. The high price in the tender will affect the inter-trade market, and I don't see why traders should rush to pay at those levels," the trader added.
While Thai producers would be able to capture high global sugar prices by pricing early through the tender, several market sources said this had created considerable uncertainty for trading houses.
The country's first 2021-22 tender was held almost five months earlier than in previous seasons, when the first tender was typically issued in the first week of August, S&P Global Platts reported earlier.
Other factors cited by the market that could dampen the outlook include Vietnam's antidumping duty on Thai sugar, weakening Chinese liquid sugar demand and a potentially larger sugar crop in Thailand.
Industry sources are expecting a 40% year-on-year increase in Thai sugar production for the 2021-22 marketing season, with estimates for sugarcane output ranging between 90 million mt and 95 million mt.
Platts Analytics forecasts Thai sugarcane output for the marketing year at 90 million mt, with the possibility of further upside.
"There is a lot of moving parts for the trade to consider since the tender was held so early. I guess we have to wait for a clearer view on the market," a trade source said.
