Physical sugar business routine, but freight a drag

Consumers are buying sugar hand-to-mouth for the most part, but larger purchases remain stymied by stiflingly steep freight rates, brokers said Monday. As a result, supplies of nearby sugar are gradually increasing and putting pressure on premiums for the sweetener, they said. "We're still being killed by freight because people are just buying what they need," a dealer for a major brokerage house said.
The Baltic Exchange's Handymax index, which represents the smaller-to-medium sized dry-bulk fleet used to transport soft commodities, closed on Friday at 33,940 points, near the all-time high of 35,512 hit last March. It was trading at 33,887 points at 11:00 am EST (1600 GMT) on Monday.
"Freight has really been a problem. But we're hoping recent pullbacks in crude prices could help moderate freight rates a bit. If that continues to happen, we may see some relief there," a trading house analyst said.
Freight has rocketed higher due to robust Asian demand for coal and steel, with the charge led by the rapid expansion in China's economy.
The immediate impact of high freight rates has been to sideline buyers from countries like India, the world's biggest consumer of sugar, whose cane crop has been hit by drought.
"The bigger buyers have been holding off, but we're seeing some decent business from those doing routine stuff from the Middle East," an investment house dealer said.
The trader said some 1.5 million to 1.6 million tonnes of sugar moved in November, mostly to customers in the Mideast, North Africa and Asia.
"It may be routine, but the volume is not that shabby," a trading house broker said.
There is reportedly some interest from Egypt, although it has delayed buying 30,000 tonnes of raw sugar for March shipment because it found prices too high.
The market took note that the Indonesian Sugar Council expects the white sugar import quota in 2005 to be set at 300,000 tonnes.
"Some people react to the news that Indonesia will be putting out import licenses, but that does not mean they will be doing any immediate buying," a broker said.
With more than ample nearby sugar supplies, cash sugar differentials have softened a bit.
Quotes for raw sugar for prompt shipment were seen at 5 to 50 points below the New York Board of Trade's key March raw sugar contract, versus 5 to 20 points below seen last week, the brokers said.