Russian sugar importers risk heavy losses as their margins turn negative after a flood of shipments at the start of 2007, but the world's top buyer still needs substantial supplies from overseas.
Expectations of a sharp rise in the raw sugar import tariff triggered the earlier boost in imports, but now market participants expect the tariff increase to be either delayed or shelved. Analysts say Russian raw sugar import margins now stand at minus $35-40 per tonne, a major disincentive to importing, but previous commitments and steady demand will ensure a continuing flow of supplies from primary origins such as Brazil and Cuba.
"Companies will be importing 50,000-100,000 tonnes a month at least until August as they have to honour already signed contracts," said Yevgeni Ivanov, an analyst with the independent Institute for Agricultural Markets Studies in Moscow. "In fact, most of this sugar has already been sold, and it still has to arrive physically."
And yet a negative import margin is a major hurdle to imports. Importers will want to wait for domestic prices to recover before booking shipments.
"Any rational businessman would settle on the fence right now," said an analyst with a Western trade house, estimating raw sugar imports to Russia in the year to October 2007 at 2.5 million tonnes, of which 1.2 million were still to arrive.
Russian domestic production and refining increased sharply after a period of high sugar prices, but the country will continue to depend heavily on imports in the near future to satisfy domestic demand.
Russia refined 769,000 tonnes of white sugar from imported raws by March 14, or 92 percent more than a year earlier, the Russian Sugar Producers' Union, the industry lobby, said.
Analysts say Russia has a glut of sugar as it refined a record 3.26 million tonnes of white sugar from domestic beet in the current season, sufficient to cover more than half its demand. But refinery operations will still need steady supplies from imports this year. Otherwise they might be forced to mothball factories, one analyst said.
Traders said the glut of imports had pushed down Russian domestic sugar prices, quoting a weekly average ex-factory white sugar price ex-Krasnodar at $523 per tonne in March, down from $538 in February and $570 in January.