London : Al Khaleej Sugar, the world's largest standalone sugar refinery, is seeing a slow-down in new orders due to sustained high world sugar prices, a senior executive said Wednesday.
Cyrus Raja, corporate affairs general manager at the Dubai-based refinery, said that low domestic prices in many importing countries in the Middle East and Asia are making buying on the international markets unviable.
Although Al Khaleej continues to run at full capacity of 5,000 metric tonnes a day in order to fulfill its standing contracts, Raja said other purchases have been dropping off as many buyers are living "hand-to-mouth."
"Either destination markets have to rise to parity or the price has to fall," he said. "There is pent-up demand, stock levels are low, but the price is such that importers aren't buying."
Refiners have been feeling the pinch as high raw sugar prices put pressures on their margins. Futures traded on New York's ICE exchange traded up 77 points to 29.10 cents a pound Wednesday, bringing them within sight of the 30-year high reached in February.
Drought
Market participants said the rally has been sparked by fears drought in Brazil will delay delivery of this year's crop as the cane will take longer to mature. "We might be stuck with a fairly wide inter-crop period," said a UK-based analyst.
Because of this, the market has fallen into backwardation, meaning prices are lower for future deliveries than at present. For refiners who rely on buying on the spot market this could mean prices will be lower when they come to sell than when they bought the raw sugar.
"Margins are not what they were," said Rajaal though he declined to elaborate on the size of Al Khaleej's margins
Forecasts
Smaller cane crop
Sugar rose to the highest price in eight months on forecasts for a smaller cane crop in Brazil, the world's largest producer. Robusta coffee climbed to a two-year high, and cocoa also gained.
Brazil's Centre South, the top cane-growing region, will produce 574.9 million metric tonnes this year, less than the 585.2 million tonnes forecast in July, industry researcher Datagro Ltd. said this week. Acucar Guarani SA, a Brazilian processor, said on Tuesday it will crush 5 per cent less next year as drought reduces crops.
"The drought in Brazil will definitely help out" in boosting prices, said Jimmy Tintle, an analyst at Transworld Futures in Tampa, Florida.
— Bloomberg
