By Carolyn Cui And Julie Wernau
One company's purchase of an unusually large amount of sugar is
sending the market scrambling.
Wilmar International Ltd. bought 1.9 million tons of sugar on
the ICE Futures U.S. Exchange and called on sellers to ship the
order--the largest exchange delivery on record--as soon as
possible. In response, prices soared in the normally sleepy sugar
market.
In New York on Friday, raw-sugar futures for July delivery
jumped 3.6% to 13.42 cents a pound on Friday, the largest one-day
move since Jan. 6.
More than a dozen ships are now lined up at Brazilian ports to
transport the sugar to Asia.
Wilmar placed the $547 million order through the exchange last
Friday, but its effect on the market hadn't been seen until this
week. It is unclear what motivated the purchase, but brokers
surmised Wilmar likely is betting on Asia's growing demand for
sugar. The company will be situated to benefit from the difference
in prices for sugar between the U.S., where prices are lower, and
in Asia, where they are higher.
Wilmar declined to comment.
The company's move to swiftly request delivery of its order has
caught many by surprise. Some analysts think it could be the
harbinger of stronger-than-expected global sugar demand, said
Michael McDougall, head of the Brazil commodities desk at Société
Générale in New York.
Trading houses are gearing up to fill the order. Sucden
Financial Ltd., which is on the hook to deliver about a half
million tons of sugar to Wilmar, said it had ample supplies to meet
Wilmar's delivery demands. Other firms that owe Wilmar sugar
including Noble Group, Louis Dreyfus Group and ED&F Man
Holdings Ltd.
Noble and Louis Dreyfus declined to comment. ED&F Man didn't
respond to requests.
Wilmar's ability to set off a sugar scramble underscores the
delicate balances between supply and demand for commodities even at
a time when the world is swimming with the sweetener. U.S.
government figures estimate global sugar production is expected to
surpass consumption by 1.5 million tons this year. Commodities are
susceptible to temporary and regional shortages due to various
factors, as they are mined and harvested in places around the world
and go on a journey to get to consumers.
It is unusual for traders to take physical delivery through
commodity exchanges because of anonymity concerns, the relatively
complicated procedures and uncertainty of shipments, especially
when sugar is readily available by other means. Companies can place
orders through trading houses directly, as opposed to exchanges,
without showing their cards.
The Wilmar delivery order came at a time when raw sugar supplies
are getting tight in certain regions in Brazil, the world's largest
sugar-producing nation. Sugar mills have already drawn down
inventories to take advantage of a weaker Brazilian currency, new
crop is still being harvested and producers are likely to devote
much of the harvest to ethanol in light of rising oil prices and
government incentives.
In a presentation to its shareholders in late April, Jean-Luc
Bohbot, Wilmar's head of sugar, showed a world map with imbalanced
sugar supplies. South America had a glut of sugar, with a surplus
of 23 million tons between production and consumption, while parts
of Asia saw a shortfall of as much as 13 million tons.
The scramble is focused in Brazil's Santos and Paranaguá
regions, from where the majority of the sugar must depart,
according to records filed with ICE. Timing can be tricky because
as a new crop is being harvested, existing sugar supplies already
are going to ethanol. Rain also could delay the harvest. Shipping
records show that Wilmar booked at least one third of the 1.6
million tons of sugar waiting to leave Brazil.
According to exchange rules, Wilmar has until mid-July to call
ships to ports for loading, but the company began ordering vessels
immediately for loading. It is unclear why it is in such a rush for
delivery.
"A lot of people who delivered were betting that the delivery
would take some time," said Bruno Lima, head of sugar at INTL
FCStone in Brazil.
In Santos, where a large amount of Wilmar sugar will depart,
sugar prices have jumped over the futures prices in New York. At
the same time last year, the Santos price traded below that in New
York, as the Brazilian crop began to enter the market and weighted
on local prices, brokers say.
The vessels were nominated in Brazil to ship sugar directly to
Asia. But traders expect that sweetener eventually will find its
way to China, as the country's sugar production this year is
expected to fall to a multiyear low. China, the world's second
largest sugar consumer after India, is expected to import more
sugar as domestic usage continues to grow.
Biman Mukherji and Huileng Tan contributed to this article.
Write to Carolyn Cui at carolyn.cui@wsj.com
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