Sugar prices edge up, nearby premium widens

Raw sugar futures were higher on Wednesday with the nearby premium widening on short-term supply tightness while ICE cocoa and arabica coffee eased on a stronger dollar.

Dealers said there was talk that one major trade house may take delivery of most if not all the raw sugar delivered against the March contract which expires on February 29.

"With expectations that a potential receiver is looking to take March (raws) on, the structure is firming and, in the short term, this implies tightness of supply or at least increased off take," Nick Penney of Sucden Financial said in a market update.

March raw sugar on ICE rose 0.14 cent or 0.55 per cent to 25.49 cents a lb at 1150 GMT with its premium to May creeping up towards one cent.

"Prices have been recently supported by a slowdown in exports from Brazil in January and downgrades to Mexico's sugarcane harvest following the ongoing drought," Goldman Sachs said in a market note on Wednesday.

"The near-term tightness limited the impact of the recent announcement of exports from Pakistan and the additional million tonne of sugar exports allowed by the Indian government," the report added.

London May white sugar futures climbed $5.40 or 0.8 per cent to $648.50 per tonne.

Wilmar International Ltd posted a 57 per cent jump in quarterly profit, boosted by a huge revaluation gain in its core palm oil business and from its enlarged sugar operations, but investors dumped shares on concerns about declining margins.

Cocoa futures on ICE were slightly lower, weighed by a stronger dollar, while sterling-denominated Liffe futures edged higher.

Dealers said a key short-term focus was the expiry of March options on Liffe next week.

"There are a few strike levels that have fair size open positions, notably at 1,600 (pounds a tonne)," one dealer said, noting there were more puts than calls at that strike price.

March cocoa on Liffe edged up 3 pounds to 1,551 pounds a tonne while May stood 1 pound higher at 1,557 pounds a tonne.

Dealers said the market was supported by an improved economic outlook which could translate into increased consumption while production in West Africa is likely to dip below last season's strong levels.

"We expect a close to balanced cocoa market in 2011/12," Goldman said in a market note.

May cocoa on ICE dipped $17 or 0.7 per cent to $2,407 a tonne.

Arabica coffee futures on ICE were slightly lower early as the market was weighed by a stronger dollar and continued expectations of a large crop in Brazil.

May arabica coffee eased 1.35 cent or 0.7 per cent to $2.0470 per lb.

"We expect the 2012/13 supply response of recent high coffee prices will likely generate a surplus under average weather conditions," Goldman said, issuing a three-month forecast of $2.00 a lb and six-month projection of $1.75.

Robusta coffee futures on Liffe were also lower with May down $12 at $1,961 a tonne.

Dealers noted March was now trading around parity with May with diminished concern about potential tightness in available deliverable supplies. The front month had soared to a premium of more than $200 to May last week.