Thailand buys sugar for the first time in 30 years – Financial Times

By Tim Johnston and Simon Roughneen in Bangkok and Jack Farchy and Jun Merrett in London

http://www.ft.com/cms/s/0/508e30b2-8e60-11df-964e-00144feab49a.html

At Big C in Bang Na, a Bangkok suburb, no sugar has been on the shelves for a week. Montree Thamnuwat, the manager, says the supermarket tried to save its dwindling supplies by restricting customers to one kilo each – to no avail.

Thailand is the second biggest sugar exporter, but for the first time in three decades on Tuesday, amid an acute shortfall in domestic supplies, it went into the market to buy.

The government bought more than 74,000 tonnes of white sugar from international trading houses at up to $720 a tonne for delivery between July and September.

Although the Thai tender was small relative to the size of trade in the commodity, the move has helped underpin a tight market.

Consumers were already rushing to replenish stocks that were depleted when prices hit a three-decade high in January. The International Sugar Organisation forecasts that global sugar inventories will fall to their lowest in 20 years this year.

The demand has sent prices for raw and white sugar spiralling higher. Raw sugar prices in New York have risen more than 20 per cent since the start of June to more than 17 cents per pound. White sugar in London has risen 32 per cent to a four-month peak of $623.50 a tonne on Friday.

In the developing world, sugar is seen as a relatively cheap source of calories – an essential luxury. When prices rise, politicians fret. Thailand’s sugar is grown by 1m farmers and many more people depend on the commodity for their livelihoods.

The country produces 7m tonnes of sugar a year, of which about 5m is exported.

“The fact that Thailand is buying shows how little sugar is available,” Jonathan Kingsman, head of the Lausanne-based sugar consultancy Kingsman, says. “It shows how tight [east and south-east Asia] is getting.”

He predicts knock-on effects. Countries that usually buy Thai sugar may have to import from further afield.

That would put further strain on the stretched supply chain. Even though large crops are expected from Brazil and India, a queue of ships is waiting outside Brazilian ports to load the new crop, keeping markets tight.

Mr Kingsman says the tightness means a greater risk of prices moving higher. “If something goes wrong somewhere, prices will go up a lot.”

The Thai shortage comes after domestic prices, which are government-controlled, fell below international prices earlier this year. That meant there was little incentive for traders to sell sugar to the domestic market and led to smuggling of the domestic quota into neighbouring countries.

Prices in shops such as Big C are controlled, but on the open market sugar is selling for Bt26 per kilo, a rise of more than 20 per cent since the beginning of the year.

Rumours that Thailand might have to import sugar have helped support prices, but traders say that looks less likely after Tuesday’s purchase.

Prasert Tapaneeyangkul, head of the government sugar board, says Thailand had intended to buy 100,000 tonnes but was put off by the high prices offered by some traders.

The price paid by the board represents a $110-a-tonne premium over Monday’s closing futures price in London.

Three trading groups sold sugar to the Thai sugar board: Louis Dreyfus of France, US-listed Bunge, and August Töpfer & Co of Germany.

“I am quite happy, but not entirely happy,” Mr Prasert says. “The price should have been lower.”

He says the government will consider issuing another tender later in the year to acquire the remaining 25,000 tonnes if local shortages persist.

The next season’s harvest begins in November.

Since 1984 Thailand has maintained a revenue-sharing system incorporating millers and farmers.

In typical years, the domestic price is higher than the global price, and producers are keen to supply the market, but the January price spike made exports more lucrative.

“In the past, global prices were lower than domestic prices,” Viroj Na Ranong, an economist with the Thailand Development Research Institute, says. “There used to be an understanding that the market had to provide for domestic consumption before it went for export.”

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