Thai Raw Sugar Could Get Benefit by Indonesia Sugar Demand

The trade analyst points out that Thai raw sugar prices are expected to find support in the first half of 2020 due to a pickup in demand from key buyer Indonesia, whose stocks are running low after the number of import licenses were slashed. A report by S&P Global Platts.

This comes after a bumper crop and weak regional demand pressured Thai cash premiums in the previous marketing year, although recent trades indicate that the uptick for 2020 is already underway. A stronger Thai cash premium is already building with next year’s March-May loading cargoes rising by close to 70% since the beginning of October at 84 points over the New York No. March futures.

Indonesia is the top importer of Thai raw sugar and accounts for approximately 70% of total Thai raw sugar exports. Earlier this year, the Indonesian government announced that industrial raw sugar import permits for 2019 would be reduced by 22% from the previous year to 2.8 million mt. Thai raw sugar exports to Indonesia has declined by close to 18% on the year to 2.69 million mt for the January-October 2019 shipment period, data from the Thai Sugar Milling Corporation showed.

Trade sources noted that domestic stocks in Indonesia are expected to fall 10%-15% year on year amid weaker imports and a reduction in the issuance of additional licenses, which could potentially prompt the government to issue more licenses in 2020. “The Indonesian government released 400,000 mt of last-minute licenses only in late-November and December, which indicates that the country is short of sugar,” an analyst told S&P Global Platts.

He added that stronger expected demand from Indonesia in first half of 2020 and lower sugar production in Thailand would support prices, outweighing the fact that Thailand is expecting a large carry-over stock of over 1.5 million mt from the previous season.

Another factor that producers would be watching closely is the Thai white premium environment. China’s stricter enforcement on cross-border movement of sugar from Taiwan and Myanmar had a knock-on effect of weakening demand for Thai refined sugar, which would continue to put pressure on Thai white premium in 2020.

“If China continues to control the smuggling flow, this would negatively affect the white premium. Producers would then focus on raw sugar sales rather than refined sugar,” a Singapore-based trader said.

The average Thai white premium in 2019 was $53/mt, down 23% year on year, compared with $73/mt in 2018, Platts data showed. White and refined sugar exports for January-October dipped 9.2% on the year, while raw sugar exports fell by 4.5%, TSMC data showed.

While Indonesia has typically sourced most of its sugar requirements from Thailand and Australia, moves are currently underway to boost imports from India amid bilateral efforts to export Indonesian palm oil to India.

Currently, Indonesian regulations allow the import of raw sugar with a minimum ICUMSA (International Commission for Uniform Methods of Sugar Analysis), or International Commission for Uniform Method of Sugar Analysis, level of 1,200. The government is looking to reduce the minimum ICUMSA to 600 in order to meet the color and quality requirements of Indian raw sugar. Typically, Indian raw sugar has a 400 to 800 ICUMSA level.

Although, there are no trade discussions reported between India and Indonesia at the moment, therefore, Indonesian buyers will likely continue to be a major buyer of Thai raw sugar in first-half 2020. Market sources noted.