Saturday, March 25, 2017

Malaysian MP Tony Pua provides a likely explanation for Kuok's Wilmar building market moving positions in sugar-Sugar King Kuok seems to still have a captive market in Malaysia

Despite the changes to the Malaysian sugar market that Pua describes, it is understood that Kuok and Wilmar continue via long term supply contracts to be the major supplier of raw sugar to Malaysia.

On 1st March, the price of white sugar was increased by 11 sen to RM2.95/kg.

The BN Minister Datuk Hamzah Zainuddin tells Malaysians to thank him because it was raised by only 3.8% and not more.  He said that's because the price of raw sugar has increased drastically.

Such cocky statements from a BN Minister always deserve a "fact check".  Let's have a look at the sugar prices chart.

Between 2009 to 2014, the Malaysian govt purchases raw sugar on behalf of manufacturers at fixed 3-year prices. From 2012-2014, it was US$26 per 100lbs.  During this period, the sugar manufacturers were happily selling process sugar for RM2.84 and making decent profits from it.

Since 2015, manufacturers purchase raw sugar from the global markets directly.

Today, the raw sugar market price is US$18.16 per 100lbs - which is lower than US$26 in 2014 even after the exchange rate differences.  However, the BN govt still increased the processed sugar price, when it should have reduced it instead.

Worse, if you look at charts, despite raw sugar price dropping to as low as US$10 per 100lbs in 2015 (from US$26 in 2014), the BN govt never once adjusted the processed sugar price lower.  This allowed the sugar manufacturing duopoly - owned by Tan Sri Syed Mokhtar and FGV Ventures - to make astronomical profits through out 2015 and 2016.

Now after making astronomical profits at the expense of ordinary Malaysians for 2 years, just because the raw sugar price has indeed increase over the past year (but still lower than 2012-2014), the sugar duopoly asked for higher ceiling prices and the stupid BN govt agreed to the hike.

So, should you "thank" the BN Minister for the "miniscule price hike"?  Or should you curse and swear at him for allowing the sugar cronies to make mega "laughing all the way to the bank" profits?

Traders question Wilmar International’s sugar rush
A new power in sugar trading is buying unprecedented amounts of the sweetener on the US futures exchange, creating confusion in one of the world’s most volatile commodity markets. 
The power is Wilmar International, a Singapore-based agribusiness whose major shareholders include the family of Malaysian billionaire Robert Kuok and Chicago-based Archer Daniels Midland. Wilmar, founded 26 years ago, is one of the world’s largest palm-oil producers but a relative newcomer in the sugar business.
A subsidiary, Wilmar Sugar Australia, is Australia’s largest raw sugar producer.
Last week, Wilmar agreed to buy $US512 million in raw sugar at the expiration of a popular futures contract on the ICE Futures US exchange.
Wilmar has been scooping up sugar by physically settling tens of thousands of futures contracts and collecting the commodity from ports across South America and elsewhere. The company has bought more than 6 million tonnes of sugar in this manner since 2015, enough to fill roughly 3000 Olympic-size swimming pools at a cost of some $US2.3 billion.
The effects of Wilmar’s moves have been the subject of debate among traders. At one point in 2015, when sugar prices were at multiyear lows because of a worldwide glut, Wilmar bought so much that traders say the company in effect mopped up that year’s global oversupply. In the rally that followed, sugar prices more than doubled.
Then, as prices peaked in September last year, Wilmar changed course and delivered excess sugar it owned to other traders on the exchange. Sugar prices fell 24 per cent in the ensuing months.
“Everybody was looking at them,” said Bruno Lima, head of sugar and ethanol at brokerage INTL FCStone in Brazil. Last week, traders and analysts ruminated on Wilmar’s latest purchase and whether it was a positive sign for sugar demand. Prices have edged higher since.
Wilmar, which entered the sugar business in 2010, owns sugar cane plantations, mills and refineries, mostly in Asia. It also trades sugar, buying raw sugar and selling it to refineries all over the world. Last year, the company handled 13.5 million tonnes of sugar, representing roughly 8 per cent of the world’s production. Some analysts say Wilmar is now possibly the world’s biggest sugar trader.
The company’s size and scale, however, are sowing concerns among some traders that it could control a large amount of the world’s tradeable sugar and influence prices.
“They are a market mover,” Nick Gentile, head trader of New York commodities trading firm Nickjen Capital, said of Wilmar. Around two-thirds of the world’s sugar production is consumed in the countries that produce it, and the rest is traded internationally.
Jean-Luc Bohbot, the 48-year-old Frenchman who runs Wilmar’s sugar business, said there is no evidence that the company’s trades affect market prices. That is “very much an incorrect view,” he said in a recent interview. “Sugar is an extremely fragmented commodity, with a very large number of players around the globe.”
While Wilmar’s sugar purchases and sales appear in some cases to have preceded rising and falling prices, Mr Bohbot said, “There is no clear correlation” between the two. Over the past few decades, sugar prices have gone in both directions when there were large physical deliveries, he added.

Freshly harvested sugarcane at a Wilmar plant near Ayr.
Freshly harvested sugarcane at a Wilmar plant near Ayr.
Many producers, end-users and speculators use commodity futures contracts to hedge price risks or make directional bets on prices. Futures are often used as a guide for pricing in the physical markets where actual commodities are exchanged.
Physical settlements of futures trades, however, are rare. Exchange operator Intercontinental Exchange estimates that fewer than 0.5 per cent of trades result in the actual delivery of commodities. The vast majority of futures contracts are unwound by traders before they expire because most firms want to avoid the hassle of transporting commodities to or from inconvenient locations. With sugar futures, buyers don’t know where in the world they will have to pick up the sweetener until after the contracts expire.
That hasn’t deterred Wilmar. Mr Bohbot said the company has found it economical to purchase sugar in bulk using futures contracts, because the exchange’s rules require sellers to deliver the sugar on board buyers’ ships, which facilitates international trading. In other commodity markets, such as grains or metals, the handover usually happens inside warehouses in locations that often might not be easily accessible.
Mr Bohbot said Wilmar ships and sells most of the raw sugar it buys to refineries in Asia and the Middle East, where consumption is growing. This sort of trading, however, is often barely profitable when shipping and other costs are factored in, he said, noting, “There is very little margin, and sometimes no margin.”
In 2016, Wilmar’s sugar division posted a 33 per cent year-over-year increase in revenue to $US5.9 billion, “an outstanding set of results,” according to the company, partly because of higher sugar prices. It earned $US125 million from the sugar business last year, for a profit margin of 2.1 per cent.
Wilmar entered the sugar market in 2010 through a $US1.5 billion takeover of Australia’s largest sugar producer Sucrogen Ltd, now known as Wilmar Sugar Australia, which owns eight sugar mills in Queensland and which says it is Australia’s largest raw sugar producer, according to its website.
It then hired Mr Bohbot, who has a long career in sugar trading, from a rival and tasked him with expanding the sugar business internationally. Wilmar made many acquisitions and entered into joint ventures with sugar producers and refineries in countries including Indonesia, Myanmar, India and Morocco. Last year the company formed a new venture with a major Brazilian sugar producer — a move likely to increase the volume of sugar it handles.
Frank Jenkins, president of Jenkins Sugar Group, a trading firm in Connecticut, said Wilmar’s large-scale buying of sugar from the futures market “is a symptom of the growth of their business.”
Dow Jones Newswires

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