Santos fire threatens huge ICE delivery, rattles market
NEW YORK Oct 18 (Reuters) - A blaze at Copersucar-controlled warehouses in Santos, Brazil threatens to disrupt a huge delivery of sugar through the ICE Futures U.S. exchange in the latest setback to roil the world's No. 1 producer's harvest.
As flames consumed 180,000 tonnes of sugar, prices soared to one-year highs as traders worried about further disruption to nearby supplies at a time when rains have already hampered Brazil's cane crush. No one was killed in the fire, but there were four people who were injured, officials said.
That equates to 5 percent of monthly sugar exports from the port, the world's busiest terminal for sweetener last year.
As traders raced to cover positions and calculate the impact on supplies, they identified another, potentially more complex, side-effect: how the blaze may affect Copersucar's ability to deliver the huge tonnage it sold to a Louis Dreyfus Corp unit against the expiring October contract earlier this month.
While the tonnage affected on Friday is small compared with the total sold to Louis Dreyfus, the damage to the 10-million-tonne-per-year terminal may hamper Copersucar's ability to store and ship sugar abroad, traders said.
In one of the most dramatic expiries in years, Louis Dreyfus Commodities, one of the world's biggest merchants, bought 1.49 million tonnes of sugar worth $574 million.
Almost 1 million tonnes of that is Brazilian sugar due from Santos, with Copersucar expected to deliver a large portion.
None of the Dreyfus material has been loaded on vessels yet, a U.S. trader said.
"This is obviously going to impact this delivery and future deliveries. Copersucar's significant export capability will just stop for the foreseeable future and squeeze everybody else," he said.
A spokeswoman for Louis Dreyfus declined to comment.
While the March contract doesn't expire until Feb. 28, the prospect of prolonged closure of a major terminal has left traders rattled about logistics even past the current ICE delivery period.
ICE Futures U.S. said it was still assessing the situation and would respond once the full impact of the fire was known.
But there are few precedents.
In June, the exchange warned that a warehouse fire could disrupt shipments at Brazil's port of Paranagua ahead of the expiry of the July contract, but the damage was limited and it had no effect on shipments.
Some dealers say traders have overreacted, given the 4-million tonne surplus expected this year. Thailand and India, with bumper crops, can pick up any slack due to a long-term disruption to Copersucar's exports.
But dealers cautioned a prolonged shutdown could have a "domino effect" across the global trade.
The main Santos port handles most of Brazil's annual sugar exports and suffered long backlogs last year as shippers struggled to keep pace with the flow of grains and sugar.
The destruction of the terminal is a major blow to the world's top sugar producer after Copersucar doubled capacity at the port earlier this year.
Its impact on the market was immediate, even with the full extent of the damage unknown. It sent prices to one-year highs and doubled the size of a market backwardation. (for graphic, click:)
Trading volumes soared on Friday, with the equivalent of over 18 million tonnes of raw sugar traded on the day, more than triple the average volume for the year so far.
"It's a bit of a stunner. The first reaction is to cover. You can't wait, so people covered parts of positions," said a second U.S. trader.
The front-month contract on ICE Futures U.S. surged to as high as 20.16 cents a lb before retreating and settling the day up 2.6 percent at 19.50 cents a lb.
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