Wil­mar: on top of the world sugar moun­tain

Port Douglas & Mossman Gazette - - NEWS - Carolyn Cui and Ser­ena Ng

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 Chicagob­ased 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.

Wil­mar last week agreed to buy $US512 mil­lion ($673m) 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, at a cost of $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 last Septem­ber, 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 about 8 per cent of the world’s pro­duc­tion. Some analysts say Wil­mar is 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.

Jean-Luc Bo­hbot, the 48year-old French­man who runs Wil­mar’s sugar busi­ness, said there was no ev­i­dence the com­pany’s trades af­fected mar­ket prices. That is “very much an in­cor­rect view”, he said re­cently. “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 said.

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. be­cause of 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

Sugar is an ex­tremely frag­mented com­mod­ity, with a very large num­ber of play­ers around the globe

ex­pire.

Mr Bo­hbot said the com­pany has found it eco­nom­i­cal to buy 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.

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 .

In 2016, Wil­mar’s sugar divi­sion posted a 33 per cent yearover-year in­crease in rev­enue to $US5.9bn, “an out­stand­ing set of re­sults”, ac­cord­ing to the com­pany, partly be­cause of higher sugar prices. It earned $US125m from sugar last year, a profit mar­gin of 2.1 per cent.

Wil­mar en­tered the mar­ket through a $US1.5bn takeover of Aus­tralia’s largest sugar pro­ducer. 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's global head of sugar Jean Luc Bo­hbot shak­ing hands with Bur­dekin cane grower Lau­rence Pavone af­ter sign­ing the agree­ment for 2017.

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