Sugar price hike? Fire destroys one of world's biggest sugar store

A fire ravaged Copersucar's sugar terminal in Brazil on Friday, paralyzing operations of the world's biggest sugar trader and putting 10 million tonnes of export capacity offline for six months or more.

However, sugar prices in the UAE and rest of the Middle East are unlikely to shoot up for now, in the wake of the fire.

Speaking to Emirates 24|7, sugar traders and producers said the fire may have damaged one of the largest sugar producers and a major supplier to the fourth biggest sugar refinery in the world, located in Dubai - Al Khaleej Sugar refinery in Jebel Ali.

“There is already enough supply in the market,” a senior official from Al Khaleej told Emirates 24|7.

Walid Al Shami, General Manager of Al Shami Sugar and Grain Packaging said he does not foresee an immediate increase in local sugar prices, because any losses of supply from Brazil, will be compensated for by new players in the market, especially India, which currently has an over-production of sugar.

“In the short run, sugar prices will not skyrocket as there is enough stock in the warehouses here,” he said.

“Sugar prices are in the acceptable levels and there is no possibility of sugar price reaching Dh 200 per bag in the UAE market,” he said.

“There is no need to panic as the fire in Brazil, will not cause a kneejerk reaction. Prices will remain stable at least for two more months,” said another leading sugar dealer in the UAE.

180,000 tonnes on fire

The fire hit all of Copersucar's warehouses at the Santos port, igniting 180,000 tonnes of sugar - roughly 10 per cent of Brazil's monthly sugar exports - and driving prices of the sweetener to a one-year high on global markets.

The loss of nearly all of its port capacity will send Copersucar scrambling to lease or rent terminal space to cover its obligations to global buyers and exchanges in the coming months. Copersucar says nearly a fifth of the world's sugar exports flows through its trading desks.

"A conservative estimate would be six months to get this in operational form (again)," said a US trader. "The jewel in their crown has been effectively destroyed."

Copersucar's rivals in Brazil will likely pick up some of the slack left by the fire and benefit from the extra export volume and improved sugar prices. The fire did not affect terminal operations at other exporters at Santos, such as Cosan SA, Sao Martinho SA or Noble.

The disaster adds one more bend to the tortuous path that Brazilian agricultural products must take to global markets. Potholed roads, scarce rail transport and backed up ports already undercut margins of Brazilian sugar and grain producers and cause headaches for global commodity markets. Agencies

Television footage showed a three-story high mountain of sugar engulfed in flames inside a warehouse that had lost most of its siding and roof to the flames. Some of the overhanging conveyor belts that transport sugar between the warehouses and eventually to waiting ships appeared to have toppled over or were lying on the pavement alongside some of the warehouses.

Firefighters eventually contained the blaze, which could keep smoldering for another two days, said Codesp, noting that "facilities involved in the accident are totally destroyed."

International sugar markets reacted quickly. ICE March raw sugar prices rose more than 6 percent to a one-year high on news of the fire before paring gains. The March contract settled up 2.5 percent at 19.48 cents per lb.
Copersucar officials said they had no additional information about the cause or containment of the blaze beyond what the fire department and port authority Codesp reported.

COUNTING ON STOCKPILES

Analysts at investment bank Credit Suisse said the destruction of the terminal infrastructure would not only affect short-term deliveries but would "also cause a disruption in Copersucar's loading operations in the next 3-6 months."

Local commodities risk management adviser Archer Consulting said, "We imagine for example a scenario of eight months to a year before the terminal returns for full capacity."

Brazil is at the tail end of a record 585 million tonne center-south cane harvest that is expected to produce 34 million tonnes of sugar. While roughly 15 percent of the crop remains to be crushed, sugar mills will shut down by Christmas and not resume production until April at the soonest.

Huge global stockpiles are contributing to a global glut of roughly 4.5 million tonnes of the sweetener, giving some wiggle room to cover shipments that Copersucar may struggle to make in the months to come, traders said.

Backwardation, or the spread of nearby over later month deliveries for sugar futures, flared on news of the fire, which will crimp the world's main sugar port's ability to meet its expected shipments to the New York ICE exchange.

Without Copersucar's terminal, which was expected to deliver the bulk of shipments from Santos this month, the port could struggle to cover the roughly 996,000 tonnes of sugar that ICE says it will ship in October. ICE forecasts 1.37 million tonnes of Brazilian sugar shipments this month.

In June, Copersucar inaugurated an expansion  project at Santos that doubled its export capacity to 10 million tonnes a year.

Copersucar represents 47 sugar mills in Brazil and recorded revenue of $4.1 billion in 2012. The company had hoped in June to expand its annual trading volume to 9 million tonnes from 7.2 million tonnes in 2012.

When large stockpiles of sugar catch fire, it can be extremely difficult to extinguish quickly. As the sugar burns into the center of the mound it creates a carbonized outer shell that inhibits the penetration of water and chemicals that would otherwise snuff out the blaze.

Firefighters will also have the challenge of dealing with subterranean passages that connect some of Copersucar's warehouses through which sugar is transported.

Fabrienne Pointier at data provider Platts said the loss of the large volume of sugar is not as bad as the damage the fire has done to Copersucar's infrastructure at Santos.

"The real significance is that it is going to slow down the logistics. It's going to be many months to rebuild those warehouses," Pointier said.

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