Sugar Trading Explained | Sugar Production, Trading & Shipping | Alexander Stewart

So when we talk about pricing of sugar and benchmarks of sugar, we can split the discussion into two. We have a raw sugar benchmark which is a futures contract traded on ICE New York exchange which we colloally call the number 11 contract. The futures market will give you an underlying price FOB at a deliverable port uh in a deliverable country. Freight is a huge part of our industry. For the raw sugar traders, they will be focusing on obviously Panamax vessels and the larger size vessels. This episode is sponsored by the shipping and commodity academy. If

you want to gain knowledge in the shipping and commodity industry, earn a certification and boost your career. Go visit shipping and commodityacademy.com link in the description. Hello everyone, welcome back to a new podcast episode. Today in this episode we are joined by Alexander Stewart. It's a pleasure to having you, Alex, in this podcast episode. So, you work in sugar trading. Uh you have more than 25 years of experience in this sector. So, can you introduce yourself, please? Sure. So, uh thanks very much for having me on today, Pulu. Much appreciated. So, yes. So, as you

say, so I've been in the in the sugar industry for 20 years. Not quite 25. 20 for now. Uh but hopefully another five years and more ahead of me because it's a fascinating industry to be in. Um and it's one that I've spent the whole of my career in so far. So I joined it by chance. Um it was an industry that I I came into by accident. Um I was looking after university. I was looking for a job that would involve travel, would involve business with overseas countries. And I happened upon the commodity world

as a sector where you had good uh good opportunity to achieve this and that led me ultimately to sugar. So yes, that's uh that that's how I found my way in. It was it was first a desire to travel and to be involved with overseas markets and and that's what led me to the sugar market. Okay. Very interesting. So uh as you know maybe everyone knows sugar. What is it? We use it every day in our food. uh but we no one knows really how we make sugar from the beginning. So maybe can you uh

guide us on the pure process please Alex? Yeah sure. So the the process of making sugar is split into two different underlying crops. So you have sugar cane which is predominantly grown in the southern hemisphere and in the equatorial regions and then you have sugar beet which is grown in the northern hemisphere predominantly so mainly in Europe, Russia, North America etc. But sugar produced from sugar cane represents around 80% plus of world market production. And so when you are looking at the sugar trade, you tend to focus on you tend to focus on cane sugar

which um which brings the majority of supply to the market. In terms of the in terms of the process of production, I don't come from an engineering background. Um, but I think one interesting thing about sugar cane uh that perhaps can be interesting for you is that as a as a crop it can be used both for food and for fuel. So quite often in the sugar market there is a debate around food versus fuel. So at times of very very high food inflation or high food prices we can often see a debate as to

how cane should be utilized. Should it be used to produce ethanol for energy uh for gasoline etc or should it be used to create sugar for eating consumption? Okay, quite clear. Thank you. So as a so do we have different type of qualities of sugar? U yeah so there are different types of qualities for sugar. So um again sugar beat typically is only used to create white sugar. So um refined sugar um where sugar cane is used to create a whole range of qualities. Um and this starts at what we call raw sugar, which is

effectively an unrefined uh bulk product that's not fit for human consumption. And this is produced at the sugar mills, so on the site where the sugar cane is actually grown, but it is then shipped around the world to sugar refineries. So and those refineries will convert it from a non-foodgrade product into a food grade product for consumption. So if you were if you were to look at a map of the world, sugar is actually produced in a huge oh sorry sugar cane and sugar beet are grown in a huge number of countries globally. So over

a 100 countries globally uh grow one of the two crops. But there are certain regions where they struggle to grow and as you might expect a lot of those market or a lot of those countries are desert countries. So what happened over the years is sugar refineries were built in these markets which would import the bulk raw sugar into for example Dubai or Saudi Arabia giving giving just two examples. They would bring that product in in bulk vessels of 70,000 tons or so, convert it into white sugar for human consumption and that would then be

distributed in the local market, sold for manufacturing purposes and so forth. Okay, very clear. Thank you. Uh so to come back to what you said um so what are the biggest producer of course first of all? Sure. Okay. So the the sugar market is driven to a very significant extent by Brazil. So Brazil is the world's largest producer. India is the world's second largest producer. Um but Brazil is is by far the most important market when we talk about exports because out of a production of let's call it 40 million tons in a good year

that they will produce in center south Brazil they may have a consumption number of around 10 million tons. Again these are rough numbers but just to give you an idea. So out of a crop of 40 million tons you can find that Brazil will export 30 million tons. If you compare that with India the second largest producer in the world you may have uh a production of 30 million tons let's say but you have consumption up at something like 28 million tons. So you're only left with a very small buffer that can potentially be exported.

Um India. So yes. So when you're looking at the markets to understand which are the most important, Brazil is number one. India is number two and India is also an important market for our for our sector because the crop is reliant on the monsoon. So if you have a bad monsoon, if if the rains fail, India can actually become a net importer of sugar. So it can be so it can be a big swing factor. But as I said earlier, a lot of countries do produce sugar. Uh so Thailand is another important one. The European

Union and so on and so forth. So globally there's a huge number that do produce it. But if you're getting into this industry from the start, focus on Brazil, India and Thailand as the big three. Okay. Very clear. And do you have a balance and correlation between producer and exporter? Because for example if you say coal for example India they have a lot of coal but they use the coal most of they're not exporting a lot. Is it the case with sugar? Yes it's it's a very good question. So um India as I mentioned India

is probably the best example of that as you might imagine they have very high domestic consumption. Um and so the majority of what they produce is consumed in the domestic market. Um so and the same applies to the European Union as well which produces 17 million tons or so uh but the majority is consumed locally. So again every country which produces will of course have some degree of domestic consumption but India is the one where it's most significant. Okay. Thank you for the insights. Uh and now in term of importers who are the country who

need all this? Yeah. Okay. So again, it depends what side of the market you're involved in. So you asked me earlier on about the different qualities of sugar and I was explaining how the refineries play a role. So and it's it's important to understand this aspect first. So you can transport sugar in raw format if you are shipping it to a refinery or you can transport it as a bag a 50 kilo or one ton bag of sugar if it is going to be consumed directly by people uh after delivery. And so what we can

do is we can split the world into two parts depending on whether they're buying raw sugar for refining purposes or whether they're buying bagged sugar which will go directly to the consumer. So when we talk about the big import markets on the raw sugar side we have China, Indonesia as two of the very important ones. They have a both countries have a significant refining sector and so they will be importing bulk raw sugar from India from sorry from Brazil from Thailand potentially India if India is exporting uh for refining purposes and again we have the

desert countries I mentioned earlier the Middle East North African regions where there are significant number of refineries uh that do the same on the other side of the coin you have markets which are perhaps less sophisticated which have not invested in refinings refining sectors or standalone refineries and they will need to import bag sugar directly and in that regard I would say that Africa and the Middle East as a as a continent and a region is by far the most important um marketplace in the world. So I know it's a very large area to talk

about um but if we look at Africa you have 54 countries in Africa and I believe that there are only six or maybe seven which produce a surplus of sugar. So just to put it into rough numbers I by my calculations I believe Africa has to import close to 12 million tons of uh of sugar a year for okay domestic consumption and a lot of that will go in as bags. So okay what the trade has to do is work out which markets they can take risk on which they can't whether they're supplying bags bulk

etc. Wh why why is I think it's a good question if I ask you uh the difference between the bag and the bulk. Why do we use bag in Africa? And so it's not it's not um true that the whole of Africa imports bags. Nigeria for example has a refining sector where they can import raw sugar and refine it. So too Algeria, Tunisia, Egypt, Morocco. Um but the reality is for a lot of African markets the cost of investing in a sugar refinery is hundreds of millions of dollars and it's a very significant expense when

in the case of West Africa your biggest supplier in the world is sitting just next door on the other side of the Atlantic. So if we take west Africa as an example um the echoes region let's consider that Togo Benin Bikina Faso and so forth for these small markets the cost of building a refinery is simply not worthwhile it for them it makes more commercial sense and practical sense to simply import the finished product directly from Brazil. The sailing the sailing time on a container ship is maybe three weeks. If you take it on a

conventional vessel, it might be 10 days. So the voyage from Brazil to West Africa is very short. There's no need to build those refineries in less populated markets. But certainly for the big markets, Nigeria, Egypt, so forth, they have invested in a refining sector. Okay. Very interesting. Thank you, Alex, for this insight. Now I want to ask you more about the trading um world. Where are based the major uh trading hubs in the world for the sugar market? Okay. So well when I first joined the industry in 2005, London was one of the main centers

for commodity trading. Uh certainly for sugar, we had a lot of trade houses here. Uh but over the years that switched to Switzerland, mainly to Geneva. Um, and until 7 years ago or so, I would say that Geneva would was the head of international trading for sugar. Um, but I do think there's been a trend in recent years to move further east to Dubai and certainly today all of the major trade houses. So the big trade houses in sugar would be Wilmar, Sukton, EDNF man, Louis Drafus and and various others. They all have offices now

in Dubai and Dubai has become a very important trading hub and again one of the reasons for that I believe aside from its connectivity and it's geographical location is it is in the center of a lot of the deficit regions. So from a time zone perspective if you're sitting in Dubai you're in the right time zone to cover African deficit markets you're in the right time zone to cover India so on and so forth. So strategically Dubai has become more important. So yes, so Geneva and Dubai as with many commodities are the main uh the

main locations, but we mustn't forget uh Latin America because again the majority of our world market traded sugar does come from Latin America from Brazil. And so the uh the Brazilian trade houses, producers with trading arms and also the international trade houses will all have representation down in Sao Paulo who will be responsible for sourcing sugar from uh from the surplus producers down there. Okay. Thank you uh Alex. And now I want to ask you about how which we sugar. It's a Okay. So it's a good question. I think um and it's a very timely

question because the sugar market today is actually in a it it is it we're in a we're in a surplus environment today. Uh we've seen significant changes across a lot of different trade houses over the last 18 months. And I think one of the reasons is a lot of those trade houses are evaluating the ways they trade and how they how they value the risk that they take. So like a lot of commodities the the increasing transparency in information flows has meant that or I believe it's meant that margins have been squeezed. So for example

if you go back 20 years you may travel to a particular country you may get some firstirhand information which may give you a time value of a few days against your competition or maybe even a week. Nowadays it's instant. the news travels very very quickly and I think that's one of the reasons that we've seen margins um or certainly backto-back margins come under pressure. So when we ask the question about how do we trade sugar again we could probably split the industry into two sectors. So you have the big guys the the Louis Drafus the

sukdoms and the willars of the world and they will uh of course they're trading physical sugar first and foremost but they will use the underlying futures markets uh to a very significant extent in order to build their trading positions. So we have a raw sugar futures market, New York number 11. We have a white sugar futures market which is called the London number five. And the big trade houses will really focus on a paper strategy on the futures side and a physical strategy which will be on their supply and demand assumptions. Okay. Um but what

we're seeing or what I believe we're seeing nowadays is we're seeing a little bit of a fragmentation on the what I call destination trading. But I think what a lot of people would call merchanting of sugar. So the last mile to destination, we're seeing far more smaller traders setting up um supplying those small individual markets with their needs. And that's a very different business because those guys won't necessarily have the firepower or the ability to take significant futures positions or options positions. They will be merchanting their product. So they will be hoping to make a

margin on the physical product alone. Um and that's where it gets difficult because again there's a lot of risk involved in in trading sugar. Um you have obviously you have your market risk. You take a view but you can be wrong for reasons of weather uh for for macro reasons. You know, certainly commodities since Trump came back into power have been very volatile for and obviously recent events in the Middle East um cause more volatility. So there are lots of macro external factors that can affect how we trade. Uh but there's also a lot of

day-to-day factors around country risk, currency risk, access to dollars. you can supply a market if if your importer hasn't managed to open his LC you have an exposure what do you do you have to take your cargo elsewhere etc so it's still despite all of the development in technology and despite the increasing speed with which information flows as an industry we're still quite analog um it's still very much about using your knowledge to understand the true risk that you and your company are taking okay on in term of scope uh are you focusing from the

producer to the end user how it works all this supply chain. So it again this will vary this will vary by trade house. So some trade houses believe that the best way to to maximize returns is to control the whole supply chain. So for those trade houses they may they may go all the way to the sugar mills buy the sugar xm mill they will manage the logistics to the port the marine freight the financing the hedging so on and so forth and in not an extreme but in if you take it to the furthest

conclusion they will actually warehouse that product at destination as well. I would say the most common way in which sugar is traded is either FOB to FOB or FOB to custom freight. So effectively playing around the marine freight in particular um but not necessarily taking incountry risk at either end of the chain. Uh the big guys do but not everybody does. It's um again you're you're going a long way up the risk curve once you have stocks either on the ground at origin or destination. Uh you have other considerations beyond just the sugar market itself.

Okay. So depending where you are working in which with what type of company you are working your plans are completely different. Um not necessarily completely different but what your offering may be to your clients. So if I if I give two um two examples of two companies that are still in London um perhaps as a as a good sort of indicator. Uh I used to work for a company called Zano and they took the decision to focus heavily on the industrial sector. So Coca-Cola, Pepsi, companies like this. Um, of course others too, but so their

focus was very much the the movement of sugar in containers to those clients, providing a value add service, offering to to manage the supply chain and the supply chain risk. Now, that was one way of of of trading sugar. It's probably more merchanting than trading. Another one of the London sugar trading companies, EDNF man has to my mind quite a different approach which is to service the wholesalers and the distributors in the big deficit markets of the world. And so for them they would focus more on how they can trade the underlying futures market and

connect that with their you know with their strategy and then they will be disposing of much larger quantities of sugar on an individual contract basis. They could be vessels of 20 or 30,000 tons of bagged sugar. So that's on the on the merchanting side. And then the other side of the coin is on the raw sugar for the refineries. Uh which is where again a lot of the trade houses focus their time. The strategies they may have there will really be heavily focused on their estimates of crops in the big surplus producers and how they

see demand from the refineries and again positioning themselves accordingly. So Alex now I want to ask you another question more about the benchmark. How we benchmark the sugar prices. Do you have specific platform online as a trader? What are your tools? Sure. So um so when we talk about pricing of sugar and benchmarks of sugar, we can split the we can split the discussion into two. We have a raw sugar benchmark which is a futures contract traded on ICE New York exchange uh which we colloquially call the number 11 contract. And this is the this

is the most significant futures uh board for sugar. It's the it's where the majority of speculative trading occurs. Um and it's where all raw sugar production and consumption is hedged. So we use this. We can trade up to two years forward on that contract. But we also have one for white sugar as well. So we have a white sugar futures contract also which is the London number five which serves exactly the same purpose. Now when you're when you're trading commodities the the futures contracts are a crucial part of any uh of any transaction. But what

makes sugar interesting is that these exchanges are physically settled. So what that means is if as a um buyer you decide to buy futures and you hold those futures through till the expiry, you will actually receive the the underlying physical commodity when the expiry day reaches. And so and likewise if you were short, if you had sold futures onto the exchange, come the expiry day, you would have to deliver sugar onto the exchange. And this is one of the the things about the sugar industry that makes it very interesting for trade houses is this ability

to receive and deliver sugar directly with the exchange. So when you consider counterparty risk, um I you know having the exchange as your counterparty is obviously a very very good counterparty risk to take, but also it allows for sophisticated trading ideas. Um because people are able to really use their knowledge and their skill to establish what is production, what is there that can be delivered. There are only certain countries which are allowed to deliver. Um so what is actually deliverable sugar and this is where we often see in the sugar market we often see quite

high volatility coming up to an expiry. So coming up to an expiry we can have quite high volatility and you will often have that volatility continuing right up until the point of the expiry as the trade houses and market participants alter their views. So hypothetically um we had one recently just as an example we had an expiry where it appeared a lot of the trade houses were nervous to receive sugar against it perhaps because they see consumption is relatively weak at the moment or perhaps it was because there were rumors of a certain origin of

sugar being supplied which they didn't necessarily want to receive. So this this these two futures markets um are what we use to benchmark uh and to price our underlying commodity and it forms the foundation and the backbone of everything that we do uh on world market trade. Now if you if you look at different regions um of course there are lots of domestic markets where there's no futures um exchange that is used. it's just a it's a flat price market or it's just a a supply and demand driven price. But for world market trade where

absolutely we use that and then of course on top of that when you're when you're doing your price discovery you will then have your premiums that for certain qualities of sugar. Again the premium will fluctuate depending on demand um depending on availability depending on lineups of vessels etc. Okay so on so forth. If you compare like so you said you have a spot market in SHA because I know you have the future market but you so you well you have the the futures market and the spot market um in theory are converged through the physical

premium. So just to ex just to explain in a little more detail how the futures work. So they the the futures market will give you an underlying price FOB at a deliverable port uh in a deliverable country and again we can say that with confidence because sugar is physically settled. So if you are still long futures or short futures on the date of an expiry you know that will happen. So we recently had the expiry of July for raw sugar. So on the final day, anyone who was long or short futures would have been receiving

or giving sugar to the exchange. But in terms of convergence with the spot market as as you call it, effectively that's done through the FOB premium or the cash premium as it's sometimes called and that is where again there's there's room for um for a little bit of flex in the system. So for example, if we consider today that funds are relatively short sugar um and have pushed the market down to a certain level, it may be that actually that has happened. But at the same time, demand could be strengthening. And so what we might

see is a very weak futures price. But with demand beginning to improve, for example, the premium that people are prepared to pay over and above the futures price in order to obtain their sugar might increase. So you can you can do it like that. And then of course depending on the time of year, if you're in the middle of a very large crop with plenty of availability, that premium can perhaps become a discount. for example, as mills try to incentivize buyers to take their sugar first um in order to clear the decks. So it can

work both ways. So what what is the benefit of to make future to trade on future? So I think there's a number of different considerations and if you were to look I think the first thing is the first thing is important to remember is that a futures exchange is there first and foremost as a price discovery tool. So it is there to enable producers, consumers and speculators to price sugar where they see you know where they see it should be valued. Um but because a futures market gives the ability for speculators to get involved. So

those can be hedge funds, they can be index funds, they could be trade houses that want to have a bigger position on the market than they're happy to have purely in a in physical terms there. So there's lots of different uh reasons you can have people involved on the futures where they may not necessarily um want the underlying physical product. So again, if if you're a speculator, you might think the price of sugar is going to go up for a certain set of reasons, but you don't actually want to buy 20,000 tons or 100,000 tons

of sugar because you don't have any need for that sugar. So all you're doing is you're betting on the price. So all of all of that sort of interest goes on to the futures market and that's what we um and that's what we need because it gives us a lot of liquidity and it therefore creates a healthy environment in which you know the rest of us can can do our business. Now there are times when physical traders will complain that the market is moving in a direction it shouldn't and that the fundamentals of the sugar

industry and production and consumption are not reflected in the futures market. So a good example of that can be what we've seen in the last 6 months perhaps not necessarily in sugar but we've seen lots of markets distorted by macro factors. Yeah. You know when you have an uncertain global outlook and the talk of trade wars etc. Of course you can you can imagine that can be bearish for commodity prices irrespective of the reality of the underlying commodity. For sure. Thank you Alex for all these insights. Um now I want to ask you more about

the price of sugar. uh of course it's based on the of every year it change but if for example do you have historical like peak on the in term of uh price level yes so I think and I can't remember what the number is but I believe the highest the market ever went was during the Cuban missile crisis uh back when Cuba was the world's largest producer of sugar um I believe during the Cuban missile crisis it reached an all-time high of 40 cents or so but Um I need to double check that it was

long before my time and um I can't recall the number exactly. Um but yeah, but I think when we talk about the the the peaks and the troughs in terms of price, outsiders will often focus on the cost of production and say what is the cost of production and the market shouldn't go below that level. Now the reality of any commodity is that the cost of production yes is a consideration and it's a consideration in terms of longerterm outlook in so far as if we are trading below the cost of production. You're not going to

incentivize new investment into our sector. But in the short term it is a crop and it is reliant on weather. And if the weather is good, we can have large crops around the world. And if we have a global surplus, the price can easily go below the cost of production. So it's not uncommon for us to trade below the cost of production. As much as as much as producers and millers would would wish that were never the case because it's a agricultural crop and in times of surplus, you know, they you can't slow down the

production within one season. If the crop's there, it needs to be processed. Um on the upside you you do have certain other considerations though. So for example if you trade below the cost of production you are preventing any longerterm investment. People won't invest if they don't see a margin there. Um you also have in Brazil you have something called the ethanol parity. So in Brazil they use a lot of ethanol to run their cars the flex fuel fleet in Brazil. And if the sugar price goes below the ethanol price in Brazil, the Brazilian sugar mills

do have the ability to convert a greater percentage of the sugarcane towards ethanol. Uh and in fact we and in fact we you know for example we could see that this year potentially we could potentially see the mills decide that they'll make a small percentage change to how much sugar will they produce, how much ethanol will they produce. So that again can act as another as another flaw. Um and then you have other other factors that can act as a flaw. When we talk about India, we spoke earlier um about India being the second biggest

producer in the world but also the world's largest consumer. In the case of India, if the world market price drops below the domestic price in India, you have to question whether India would be keen to export or not. And we've seen that happen this year. India had an export program of 1 million tons this year, which is a very small export program for them, but still 1 million tons. You know, it's a decent quantity. They've only performed about 50% of it. And one of the reasons is domestic prices are higher than the world market. So

the world market is giving India the information that it doesn't really want that sugar to come out. And so the Indian mills are happy to sell it domestically where they can secure a higher price. So again that can be another factor as a flaw when we talk about the upside. Uh well as as you know in theory on on markets the upside is technically unlimited. Um but again what we would naturally see as our limits would be either the market going so high that you do incentivize new production and new investments into the sector and

then five years down the line that you start to see the fruition of that. What about so average sugar price per tone uh for someone who wants to just have a kind of insight uh the New York market which is uh actually closed today for the 4th of July but if we were to look at that today we can see it's trading in the nearby position at um at 1640 16 cents 16.4 4 cents per pound. Uh whereas further forward when we look at March next year, it's trading at 17 cents. So again, that's telling

us that in the short term, you know, we've got ample supplies perhaps we have relatively low um demand potentially, although that's a debate. It's always, you know, you can always ask the question, is the price low because of a lack of demand or is it because of a surplus of supply? And depending on who you talk to, you'll have a different answer. Uh but we can see as we get to March next year which is the offc crop in Brazil we can see prices are higher again. Can you can you share your screen maybe to

explain? It would be very interesting. Yeah sure. Okay. So this is just a delayed one but it's fine because where the market as I say the markets closed yesterday. So if I just go onto here we can see that yesterday the market closed trading at 1638 cents per pound. This is the raw sugar market. new number 11. And this is the October contract. And as I say, we're in the peak of the crop in Brazil at the moment. Production is looking good this year. Sugar is moving out relatively quickly and efficiently. And so we can

see that the nearby position is actually trading at a discount to the March 2026 contract, which is our next contract on the board, which is trading at a higher level of 17.06 cents cents per pound. So that is telling us that the market is trying to incentivize people to take the product today um because you know we're in the peak of the crop we need the product move now when we get to the offc crop there's less certainty now if we just as an example as we have both of them up here at the same

time if we look at the white sugar market down here uh which is trading today we can see that the August contract is trading here at 475 which which is at a premium to the next contract on the board. Okay. So, so it's actually it's actually um inverted as we call it. So, the the the raw sugar market up here is in carry which is the natural all things being equal. This is how you would normally expect a market to trade with the nearby cheapest and the carry curve which should reflect the cost of carry

going forward. But here we can see that the white sugar market is trading inverted and the nearby position is actually at a premium to the next one. And the reason for that could be the other, you know, if if we flip the coin over, we can say, well, maybe that is because white sugar demand today is stronger than the availability. Uh we've got hot weather in Europe as as you and I are both enjoying. Uh you know, there's talk that the crops here might be be marked down. consumption might be a little bit higher as

we enjoy a hot summer for example. Uh India as I just mentioned is actually not exporting as much sugar as it's able and so there can be certain reasons perhaps why we see uh the market inverted in this way. So these are the types of these are the types of nuances that the traders will look at and then we'll take a decision um accordingly. And just to go back while we have the benefit of the screen up, just to go back for one minute. Yeah, sure. To your previous question when we were talking about the

the contract being a physically settled contract. This is where trade houses um and producers and consumers can start to play uh can start to play games. So for example, if you are the the August white sugar contract expires in 10 days time and you may discover that there's a trade house that believes demand is strong and so therefore they want to receive sugar uh from the exchange and they can even actually start to squeeze the market as well. So if they decide that there's only 100,000 tons of sugar that could potentially be delivered, they might

decide to put a position on to receive 300,000 tons just as an example. Um so all of these sorts of games and we can see that often reflected in how the market moves. So again, we can see here today white sugar prices have dropped $650 in this nearby position uh but only $280 here. So the traders will be looking into that saying why is that happening? Is that a reflection of demand or is it somebody moving the position? How do I benefit from said trade? Are you analyzing the curve sometimes as we do in in

trading of like for example every type of stock or everything completely. Exactly. So and again this will depend on what type of um this will depend on what type of market participant you are. So if we talk about the producers, the sugar mills and the sugar refineries, for them of course they will be they will be looking at their cost of production and if they believe that today's prices once converted into their local currency of choice um if that's covering their cost of production, one would assume that they will be hedging a percentage. And likewise

for the consumers, the soft drinks manufacturers, the confectioners, if they look at the market for the next 12, 18 months and say actually these prices are within budget etc. we can expect them to start putting down some hedge to reduce their exposure to the sugar market. Okay. Um, but of course, as with any hedge, it comes with risk because you you're you're hedging you're you're hedging a a product that you're either producing or consuming and you're hoping to beat the market. And if you don't, it doesn't mean it was the wrong decision, but if the

price moves against you, you can have some difficult questions to answer internally in your company. Yeah. Okay. Makes sense. Thank you, Alex. Uh I think you can stop sharing the screen because now I will ask you more about I want to ask you more about the freight aspect of sugar. So of course as a you're like a commodity trader but uh are you managing as well sometimes the freight? I think the freight is very important for you. Yes. So freight so freight is a hugely important part of our industry. Very very important part of our

industry and as I mentioned earlier because sugar is produced in a huge number of countries around the world. you're you're constantly doing benchmarking exercises to work out what makes the most sense. So, for example, if you are a sugar refinery in the Middle East, in Saudi Arabia, for example, does it make more sense for you to buy sugar from Thailand and ship it from Asia or should you be buying from Brazil and shipping from South America, for example? So there's a huge amount of work that goes into uh freight arbitragees on a on a daily

basis across all of the trade houses, however big or small. Um I think that one of the ways freight is changing or certainly during my time in the industry, one of the ways that freight has changed has been the the growing demand for containerized sugar. So the so on the bag sugar market the 20ft shipping container has become increasingly popular. So where historically we may have seen more exporters exporting in handy size vessels um well in fact prior to you know you know looking further back the average size vessel was probably 10 or 12,000 tons

coming out of Brazil with bags. Today we could say it would be 20 to 25,000 tons uh would be the average size. So again the smaller vessel sizes have been disappearing from our from our industry. It's just not economical and has been replaced to a certain extent with these larger vessels but also for a lot of people with containerized movements. And again that when we look at that type of freight it comes with a whole different set of risks because you're now talking about the performance of a third party. You know what happens if MK

or MSC has a lot of congestion? What happens if they've over booked? What happens if they reroute their vessels back to China US routes? If you know relationships improve there. So freight is a huge part of our industry. Uh my career has been focused on the bag trigger side of the market and so I'm constantly looking at handy size vessel freight versus container freight from various origins. For the raw sugar traders, they will be focusing on obviously Panamax vessels and the larger size vessels. Um and they will be looking at the arbitragees of Central America

versus Brazil, you know, Thailand versus India, etc., etc. Okay. Okay. Do do we have specific roots, sugar roots like typical ones? For example, in the grain market you have the P6 and very very famous like roots from like Singapore to uh then you take the shift in east coast, South America back to China. Do you have the same type of route? Yeah, we do. We do. So you would have so in terms of the important routes you would have you would have uh South America to the Red Sea for example is very important for the

bulk vessels for the for the Panamaxes etc. Uh on the smaller vessel size on the handymax vessels um east coast South America to west coast Africa for example is a very important one. Um so yes there are certain routes and obviously for China which is the the one of the largest importers of raw sugar or the largest importer of raw sugar um east coast South America to China is obviously a very important route as well. Okay very clear. Uh now I just ask you to come back to bulk versus you know bagged container. uh do

you think in the future we will see more and more like container uh uh in term of uh like it will be more bags or do you think that first of all why do we use more bags and do you think in the future it would change etc. Yeah, it's a good it's a good question um and it's a very timely question. We've seen in the last 12 months a big uh reshuffle in our sector. We've seen a lot of trade houses that have reorganized their sugar businesses. Some of some of them to focus on

more risk, some of them to focus on less risk, some to focus on more on the raw sugar side, some to focus less, etc. But there's been a lot of changes. Um but I think from my side what I see happening in terms of of the change I see perhaps the fragmentation of the white sugar market would be my if if I had to guess what we could see happening I can see the white sugar market becoming more fragmented and and the reason I say that is if we go back to the start of the

discussion when I was explaining about the refineries that are built in either well certainly desert countries but also countries with very high population. So just to recap um we said the refineries were built across North Africa, Middle East. They're built in India, Indonesia, Nigeria etc. So either very large population centers or regions that cannot easily grow sugar cane or sugar beat. Um but what we see happening with the proliferation of those refineries, you then have a a regional supply source that can cater to a lot of the regional demand. So whereas if you go back

to 2005, Europe was the most important white sugar exporter to the world and European sugar would flow globally. M but but nowadays you don't well number one production in Europe has come down significantly but also because of the growth of these refineries you don't actually need necessarily to import white sugar in bags to all of those markets and so what you can see happening more and more is certain regions become more regionally focused. Um so we can take some easy examples Sri Lanka when when India's exporting it in theory it should never make sense for

Sri Lanka to import from Brazil they should take it from their neighbors um in the Middle East in theory Saudi Arabia should have no need to import sugar white sugar from Brazil because they have enough refining capacity locally to meet domestic uh demand. Now just because the theory says that it doesn't mean it doesn't happen. There will always be trading opportunities to to move things around. But I would say that to answer your question of will we see more sugar trade in bags um at the end of the day that the final supply point is

always in a bag. So you know even if Brazil is exporting raw sugar they export raw sugar to a refinery who will then convert it into a foodgrade product and will then put it in a bag and sell it to his or her final client. So the last delivery is always in a bag ultimately. It's just that often that will be within a domestic market. So for example, Nigeria does not allow the import of bag sugar. They will only allow raw sugar imports which go to the refineries and then those refineries will sell white sugar

processed sugar effectively uh to the local market. Okay. So, and I think this is probably the the change you're asking about is I think we could perhaps see the the white sugar market become more and more fragmented which for the trade houses is both a threat and an opportunity. Okay. It will create uncertainty which brings risk but it will also bring opportunities. Okay. On on the bulk side for like people working in the dry bulk sector, do you think it's a risk in the future to to think that maybe we will use less and less

bulkers to transport sugar? I think for the raw sugar traders, I don't think that's a risk. Um I I don't think the the freight side of it is a risk. I because bulk sugar out of Brazil will always have to be uh handled in bulk vessels. Of course, I I think perhaps what you can come on to there is the question mark about consumption growth or decline. We know sugar is not a popular commodity. Um there's a lot of countries with sugar taxes. We will have to be careful about our our weight, our health, etc.

And certainly in the developed world, we've seen a move away from sugar. Um you know, I I suspect even for you and I um you know, we think about we think carefully before we reach for the second biscuit, right? It's uh we try not to have a Coca-Cola every day. We all think about what we put into our bodies far more than we used to. So the the question around consumption growth is a it's a very difficult one to answer. But I I think the majority of our consumption growth nowadays will come primarily through population

growth. So Africa, Middle East, I suspect is where we'll see the majority of the growth continuing to come. and also potentially urbanizing markets. So again, Africa in particular, as populations become more urban, consumption habits can change, you know, per capita consumption can increase. But if you look at Europe, consumption in Europe is stagnant um potentially potentially even according to some analysts declining a little bit. So it's I think that would be the bigger concern for the raw sugar traders is okay you know if if the market is beginning to reach a cap um and we're

not yet we still have a huge amount more growth to come in terms of population in in Africa in particular um which will continue to drive demand growth but once that once that peaks then you have a question mark okay it's a very interesting point to take into account thank you Alex and now I want to ask you the last question of the episode more about if you can give a tips for like people want to join the sugar market or maybe want to consider to work as a sugar trader. Yeah, sure. So, I think

if I look back at um if I look back at the career I've been lucky enough to have until now, um it's been an incredibly rewarding one. There's been a lot of a lot of travel, meeting a lot of different people, interesting times, good trades, bad trades. Um, you know, good results, bad results. As with any commodity trading business, you have to be uh you have to go in with your eyes open because you don't always get it right. Um, but you learn from your mistakes and you trade better from those mistakes as well. In

terms of advice, therefore, it is still very much a people industry. So, if you want to be involved in the physical side of the market, it's about getting out there, meeting people, um, learning the fundamentals and, you know, like I said, learning about the crop cycles, learning how it's traded, learning which markets take what product, etc. So, and that is the same for any commodity, of course. I think, what advice would I give to somebody starting out today? I I do think funnily enough if you're leaving university or leaving college at the moment and you

had the opportunity to join a company that trades multiple commodities, that's always an interesting opportunity because you don't necessarily want to be shoehorned into a very specific sector at a young age. So, I'm not saying, you know, a lot of people make their whole career in sugar and love it and that's great. But if you're starting out today and given what I've just said about sugar tax and you know the anti- sugar lobby, I think it would be wise if possible to look at a look at a company that trades more than one commodity. Um,

and I think the other thing in commodity trading as well, and this is a a question that I'm sure you've asked others, is understand why a company that you're applying to trades. What is their re what is their reason for trading? Are they a company that is providing a very high level of service to consumers um and therefore is seen as a effectively a service provider? Are they a company that wants to trade the paper the futures exchanges very aggressively and the physical side of the market is more of just a a book balancing exercise,

you know, to to make sure that the positions all match up, etc. But really the the desire is in the paper. Because if that was the case, then the advice might be different, which would be to learn about the technical side of trading, all of the um you know, charting skills and so forth, rather than learning about the fundamentals. So it it depends what interests you in terms of do you want to go down the technical trading side or the physical trading side but it also depends on what the company you're talking to is trying

to achieve and I think that for me would be would be an interesting question to ask. Um yeah that's a it's a very interesting point. Yeah, for sure. Definitely. And I think now this is becoming quite uh very important especially for young people to think about the you know the social the uh what is the the name? How can I call it? Um yeah the social aspects the the value behind the company. The value is very important. Exactly. Yeah. Um but certainly as an industry it's it's a great fun industry to be in. Um it's

competitive. It's hard work as as any industry is. uh but it can be very rewarding uh and and very enjoyable uh when you're when you're doing it well. Thank you, Alex. Thank you for this nice episode. It was very insightful. Uh so again, I say thank you and wish you of course all the best. Thanks so much. Thanks for your time. Nice to talk. Thank you.