High futures prices cut premiums for Thai sugar for prompt delivery, but steady demand for next year's shipment helped the physical market defy pressure from abundant supply in Thailand, dealers said on Wednesday.
Demand from China could also offer support for the market as the world's second-largest economy struggles to fill a supply deficit after it sold all the 200,000 tonnes of sugar from state reserves in the second auction this month.
Premiums for Thai high polarisation, or hipol raw sugar for March-May 2012 delivery, were steady at between 30 and 70 points above New York's March contract, while the value for this year's shipment slipped.
"There are some inquiries for next year's delivery. People are looking at around 35 to 45 premiums, but it's not for us anyway. That's the buying idea," said a dealer in Singapore.
"We're trying to do some business for prompt, but the futures prices are still a bit toppish. But who knows that in the next one or two weeks we will be able to sell if the market pulls back."
Prompt Thai hipol raw sugar was offered at premiums of 150 points to New York's October contract, down from 220 points last week, partly because of rising supply in Thailand, but consumers were likely to wait for more declines in prices.
Thailand, the world's second-largest exporter after Brazil, may cut sugar supplies for domestic consumption quota by 100,000 tonnes this year, allowing a record of 7.1 tonnes to be exported to the world market.
Brazilian raws were steady at 75 points premiums. New York's October raw sugar futures on ICE ended down 0.27 cent at 29.62 cents per lb on Tuesday, but they were still within sight of a six-month high at 31.85 cents last week.
Sugar futures have been supported by further forecasts for cuts in the cane crop of top producer Brazil and expectations of more purchases from China after a prolonged drought hit the country's growing region.
Sugar shipments to China were expected to increase in the next few weeks, with dealers estimating arrivals at more than 300,000 tonnes in August and September. China consumes up to 13.5 million tonnes of sugar annually, accounting for about 9 percent of global production. Imports in the first half jumped 27.4 percent from a year ago to 520,472 tonnes.
"China is very price-sensitive but they are also very good buyers. It all depends on the prices to be honest. I mean if the price is 20 cents or less which is probably expected to be by this time next year, we will see China buy quite a lot," said another dealer in Singapore.
"If it still at 28 cents, then China is going to buy very little. But China might opportunistically pick up a bit too." China has used up all 1.95 million tonnes of its import quotas for the year, but the government could issue more because of the drought in Guangxi, which produces about 60 percent of the country's sugar.