White sugar hit the highest level since October as a rally in oil prices and the ongoing disruptions in the Strait of Hormuz stoked fears about supplies across the Middle East as well as shipments from the region.
The most-active contract rose as much as 3.9% to $454.10 a ton, bringing its premium over the raw, unrefined variety to the widest gap in six months.
The Strait of Hormuz is a major route for delivering raw sugar to refineries in the Middle East that convert the product into white sugar. The strait has been essentially closed off since the Iran War erupted.
That’s hit roughly 6% of the world’s sugar trade, according to Claudiu Covrig of Covrig Analytics. Vessels carrying raw sugar to major refining hubs in the Middle East are stranded or rerouted, constraining output of refined sugar at a time when regional demand remains strong, he said.
Gulf sugar refineries typically rely on steady inflows of raw sugar from Brazil and other exporters, but delays and diversions are creating supply gaps across the Middle East, East Africa and parts of Asia, Covrig added.
Raw sugar futures rose as much as 4.4% in New York, touching levels last seen in late October. The rally comes amid the “unwinding of a record short” position from non-commercial traders, with higher prices also likely triggering more automated buying, according to Mike McDougall, an analyst at McDougall Global View.
The market has broadly followed crude prices higher, as traders watch to see if Brazil’s national oil giant Petrobras will raise domestic gasoline prices to tackle higher energy costs. Any such move would incentivize the country’s sugar mills to divert more cane into ethanol instead, reducing global availability of the sweetener.
With Indian flows limited by lower output and sluggish exports, the market is increasingly dependent on Brazil’s production mix, where the allocation between sugar and ethanol output will be critical in determining global supply in the months ahead, StoneX analyst Murilo Aguiar wrote in a note.
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Written by: Mumbi Gitau and Ilena Peng @Bloomberg
The post “White Sugar Hits Five-Month High as Iran War Crimps Gulf Supply” first appeared on Bloomberg