LONDON, Sept 16 (Reuters) – A small white sugar delivery tonnage against an ICE futures expiry this week has highlighted a need for new derivatives contracts to better reflect market conditions, brokers and traders said on Wednesday.
A number of proposals are under consideration because the trade in white sugar is increasingly containerized, rather than shipped in bags, and containerized trade is not represented in current futures trading.
“The present system is unsatisfactory,” said a senior European sugar trade analyst.
“The bagged cargoes represent only a small proportion of world trade.”
A total of 2,289 lots (114,450 tonnes) were delivered against the October white sugar futures expiry on Tuesday, the ICE exchange said on Wednesday.
The delivery was the smallest against the white sugar contract since March and worth just over $40 million, based on Tuesday’s closing prices.
Traders said there was talk that ICE was in the process of approving rules governing a planned global containerized white sugar futures contract based on physical delivery.
A spokeswoman for ICE declined to comment.
“There is very strong interest to have risk management control in the market,” a sugar industry consultant said.
One trader estimated that 80 percent of the global white sugar trade is now containerized.
Moves to create a containerized contract have proceeded slowly because of the challenge of creating a satisfactory regulatory framework and the complexity of creating effective rules for containerized deliveries, trade sources said.
Separately, trade consultants have proposed a cash-settled global containerized white sugar contract which could trade alongside a cash-settled intra-EU white sugar contract.
The dismantling of production quotas in 2017 could see the EU emerge as a major white sugar exporter, heightening interest in internal prices which can differ significantly from world market values.
“Simply to have an EU container market would not work, but we have done some work on appropriate benchmarks for broader container markets,” Roger Bradshaw, a senior European sugar consultant, said.
“We have discussed the platform with interested exchanges. We are still awaiting their agreement to progress to the next level to commercialize this, given the very positive support from producers, growers, end users, refiners and trade houses.”
Bradshaw did not identify the exchanges that had been approached.
Another European trader said a draft proposal had also been submitted to some exchanges calling for a deliverable intra-EU white sugar futures contract.