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Cheap Freight Erodes Thai, Australian Sugar Export Advantage over Brazil

Maritime Activity Reports, Inc.

January 21, 2016

Cheap freight is eroding Thai and Australian sugar exporters' competitive advantage over Brazilian suppliers to Far Eastern markets, traders said on Thursday.
Thai raw sugar for March/April shipment was quoted at 25 points ($0.25/lb) over ICE March futures, compared with 10 points over March for Brazilian supplies.
Cheap freight costs mean that Brazilian export offers are almost as competitive as Thai offers in China, the world's top sugar buyer, with Brazilian freight to north China at around $14-15 per tonne, against Thai freight at around $9 per tonne.
"Cheap freight means that Far Eastern premiums are getting cheaper," a senior European trader said.
Another senior European trader said that the spread between raw sugar from Australia to Malaysia, as compared to Brazil to Malaysia, shows Australia has an advantage of $2.
The average advantage for Australians on this route over the last 5 years has been $22/tonne.
"The weakness in Thai raw premiums reflects the narrow freight advantage for Thais/Ozzies over Brazil," the trader said. "This is why Thais are a small premium to March futures."
Global shipping rates have plummeted to all time lows amid fears of overcapacity and a global economic slowdown linked to China's weakening economy.
The benchmark Baltic Exchange's main sea freight index , fell to the lowest level since 1985, the first year for which data is available, on Wednesday.

(Reporting by David Brough; Editing by Katharine Houreld)

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