Russia, the world's No. 3 raw sugar importer, is expected to sharply cut its raw sugar import tariff in May to $50 per ton from $140 before a likely jump in June.
London-based sugar group Czarnikow said last week up to 1 million tonnes of raw sugar were expected to arrive in Russia in May if the tariff fell to $50. Russia's industry lobby put the likely imports at 850,000 tons.
Sugar accounts for around two percent of overall dry bulk shipping activity. The likely duty cut has created a brief opportunity for mainly Brazilian raw sugar exporters and also sellers of Cuban and possibly Central American sugar.
"Everyone wants to ship their cargoes before the beginning of May and it has had a huge impact on freight rates," a ship broker said.
"Most of the vessels are on their way or they are just about to start loading."
Dealers said freight rates on the route from South Brazil to the Black Sea had risen to around $62 to $65 a ton from around $52 to $54 a ton.
"It's all in the market (the expectation of a duty cut). That is why the market is going up," said David Sadler, a senior sugar futures dealer.
"If the duty cut didn't happen, the market would come off."
Dealers said that they expected the Russian duty to jump to $200 per ton in June, based on the likely recalculation of the tariff.
News of the expected duty drop in May has supported raw sugar futures, dealers said.
The Russian demand story, combined with reports of a proposal to raise the U.S. sugar import quota by 300,000 short tons, had contributed to a rally which lifted raw sugar from an 11-month low.
Raw sugar futures slid almost 40 percent in the first quarter of this year, as the market focused on a lack of physical demand after prices surged to a 29-year peak of 30.40 cents a lb on Feb. 1.
Prices fell by almost half in the following weeks, before the rally.
"In the near term, buying from Pakistan, Russia and South East Asian countries should support prices as cancelled tenders are re-issued and import duties reduce," Investec Asset Management said in a report last week.
Flurry of Fixtures
Brokers cited freight enquiries this week from trade house ED&F Man to ship 12,000-50,000 tonn prompt from South Brazil to the Black Sea, from Louis Dreyfus to ship 35,000-40,000 tons prompt from Paranagua, South Brazil to the Black Sea.
Vitol also sought to transport 25,000-35,000 tonn from South Brazil to the Black Sea in May, and Bunge aimed to move around 25,000 tonn from South Brazil to the Black Sea.
"It's an isolated little blip. Sugar is not a driver of the freight market," a senior London-based shipping broker said.
Sugar is usually transported in handymax or handysize ships, which have a capacity of around 20,000 to 50,000 deadweight tonn.
Average daily earnings for handysize ships have been close to their 2010 highs in recent days at over $20,000 a day, Baltic Exchange data showed.
"A short-term increase in exports will certainly help handies," said Jeffrey Landsberg, senior analyst with dry bulk consultant Commodore Research.
Czarnikow had said 16 vessels, carrying a total of 440,000 tonn, were reported to be in the Black Sea waiting for the duty to fall in May.
Nigel Prentis, a director with HSBC Shipping Services Ltd, estimated a further 24 ships could be needed to transport the remaining tonnage.
"It could add a short-term lift to handysize demand, which is already doing quite well," he said. (Reuters)
