Stretched infrastructure at Brazilian ports is expected to cope with mounting ship delays as vessels wait to load sugar and freight rates could find support from growing global demand for the country’s new crop.
Appetite for sugar from Asia, Africa and North America has led to a long ship line-up at ports in Brazil, which provides at least 80 percent of the world’s sugar at the peak of its harvest in the centre-south in the July/September period.
“The world is becoming too dependent on Brazilian supplies. If Brazil has a problem, we will see quite a reaction to it,” said James Kirkup, director and head of sugar brokerage at ABN AMRO Markets (UK) Limited.
As the peak of the cane harvest approaches in the centre-south of Brazil, ships entering Santos port are having to wait around three weeks, rather than the usual 10 days at this time of year to move cargoes out, physical sugar traders say.
“We are seeing record sugar shipments from Brazil. There is very strong demand,” said Toby Cohen, head of research at sugar group Czarnikow.
Brokers said a fire at a warehouse in Paranagua port last month disrupted sugar shipments.
“The Paranagua fire shows the vulnerability of Brazil to the problems of their logistics,” said Jonathan Kingsman, managing director of sugar consultancy Kingsman SA. “Brazil’s port logistics are being stretched.”
Brokers and analysts believed Brazilian ports could cope with the pressure of the physical demand as long as there was no impact from a natural calamity, such as adverse weather.
New investments, including a terminal operated by trade house Noble at Santos port, were helping.
“Imagine how severe the congestion would be if that terminal had not been built,” a senior physical sugar trader said.
Focus on Thailand
The lengthy delays in loading, which reflect the strength of cash demand, have been a factor underpinning sugar futures prices, with brokers also eyeing a Thai buying tender for 100,000 tonnes of refined sugar expected later this month.
“As Brazilian ports are very congested, the next logical place for Thai importers is to look to different markets such as Australia and possibly India,” said Andrew Winkler, an analyst at dry bulk consultants Commodore Research.
“Aside from Brazil, Australia is the next largest export market after Thailand and would likely see increased demand.”
Sugar freight rates have seen little impact so far from the strong surge in cash demand for Brazilian sugar, with rates holding steady on the key South Brazil to West India route at around $55 per tonne, and on the South Brazil to Black Sea lane in the late $30s per tonne.
Nevertheless, freight analysts said with the South American grains export season ending, the handysize and handymax shipping markets were seeking business opportunities from the sugar trade and from developing congestion off China’s soybean ports.
The centre-south of Brazil, which is harvesting the bulk of Brazil’s crop, could export as much as 2.5 million tonnes of raw sugar per month, but analysts are pencilling in 2.1 million tonnes per month for the July/September period.
“For the handysizes that could be a very significant development,” said Peter Norfolk, research director with freight broker FIS.
While Brazilian sugar is partly shipped in containers, a significant amount is transported using dry bulk vessels especially handysize, handymax and supramax ships.
“Increases in sugar and soybean trades will go some way to counter-balancing an expected quiet period for grain trade before the Northern Hemisphere harvest starts in earnest in late August/early September,” consultants MSI said.
Centre-south Brazil’s sugar harvest is expected to gather pace in the coming weeks if the weather remains favourable.
“People are still pricing the forward cargoes more aggressively than the spot,” said Guy Campbell, managing director of ship broker Clarkson’s dry cargo division.
Analysts said the impact on freight rates, especially if the Thais imported, wou