Monday, 21 October 2013 00:00
Reuters: A blaze at Copersucar-controlled warehouses in Santos, Brazil threatens to disrupt a huge delivery of sugar through the ICE Futures US exchange in the latest setback to roil the world’s No. 1 producer’s harvest.
As flames consumed 180,000 tons of sugar, prices soared to one-year highs as traders worried about further disruption to nearby supplies at a time when rains have already hampered Brazil’s cane crush. No one was killed in the fire, but there were four people who were injured, officials said.
That equates to 5% of monthly sugar exports from the port, the world’s busiest terminal for sweetener last year.
As traders raced to cover positions and calculate the impact on supplies, they identified another, potentially more complex, side-effect: how the blaze may affect Copersucar’s ability to deliver the huge tonnage it sold to a Louis Dreyfus Corp unit against the expiring October contract earlier this month.
While the tonnage affected on Friday is small compared with the total sold to Louis Dreyfus, the damage to the 10 million ton per year terminal may hamper Copersucar’s ability to store and ship sugar abroad, traders said.
In one of the most dramatic expiries in years, Louis Dreyfus Commodities, one of the world’s biggest merchants, bought 1.49 million tons of sugar worth $ 574 million.
Almost 1 million tons of that is Brazilian sugar due from Santos, with Copersucar expected to deliver a large portion.
While the March contract doesn’t expire until 28 February, the prospect of prolonged closure of a major terminal has left traders rattled about logistics even past the current ICE delivery period.
ICE Futures US said it was still assessing the situation and would respond once the full impact of the fire was known.
The main Santos port handles most of Brazil’s annual sugar exports and suffered long backlogs last year as shippers struggled to keep pace with the flow of grains and sugar.
The destruction of the terminal is a major blow to the world’s top sugar producer after Copersucar doubled capacity at the port earlier this year.
Its impact on the market was immediate, even with the full extent of the damage unknown. It sent prices to one-year highs and doubled the size of a market backwardation.
Trading volumes soared on Friday, with the equivalent of over 18 million tonnes of raw sugar traded on the day, more than triple the average volume for the year so far.
“It’s a bit of a stunner. The first reaction is to cover. You can’t wait, so people covered parts of positions,” said a second U.S. trader.
The front-month contract on ICE Futures U.S. surged to as high as 20.16 cents a lb before retreating and settling the day up 2.6% at 19.50 cents a lb.