SOFTS-ICE sugar recoups losses after hitting 2-1/2 year low
* Small delivery expected against March raw sugar on ICE
* March raws trading at widening discount to May
* Arabica coffee prices fall as surplus supplies weigh
(Adds detail, quotes, updates prices)
LONDON, Feb 28 (Reuters) - ICE raw sugar futures dipped to a 2-1/2 year low on Thursday before recouping losses in choppy trading with the market's focus on the expiry of the March contract later in the day.
Arabica coffee on ICE were lower, as excess supplies kept the market on the defensive, while cocoa also fell.
Dealers noted a small delivery was expected against March with little appetite to receive a commodity that remains oversupplied as a third consecutive global surplus is widely forecast for the 2012/13 season.
Open interest on March fell by around 45 percent overnight to 7,065 lots and the front month slumped to a discount to May <SB-1=R> of more than 0.30 cent, compared with a premium of around 0.30 cent at one stage last week.
"We suspect delivery will be small," Nick Penney of Sucden Financial said in a market note.
March raws were up a marginal 0.01 cent or 0.1 percent at 17.85 cents a lb at 1527 GMT after earlier slipping to 17.61 cents, the lowest price for the front month since August 2010.
Dealers said lower sugar prices were helping uncover demand on the physical market.
"Brazilian export figures were a record in the fourth quarter versus the same period in previous years and are going to be a record in the first quarter. This shows current prices are continuing to stimulate strong demand," said Peter de Klerk, analyst at Czarnikow.
Brazil exported 1.73 million tonnes of raw sugar and 567,100 tonnes of white sugar in January.
Producer selling above the market was expected to limit any moves to the upside, with dealers noting potential interest above the 18.50 cent level.
May white sugar on Liffe rose $3.20 or 0.6 percent to $516.60 a tonne.
BUMPER BRAZIL ARABICA CROP
In arabica coffee, dealers said another bumper harvest from Brazil expected in the coming months continued to exert downward pressure on prices.
"There's still a lot of arabica around, Brazil is still sitting on a lot," said a London-based broker.
ICE May arabica coffee fell 1.05 cent or 0.7 percent to $1.4240 per lb.
Robusta prices were little changed as the market continued to be underpinned by the current slow pace of Vietnamese sales. May robustas on Liffe rose a marginal $4 or 0.2 percent, to $2,102 a tonne.
Indonesian robustas fetched smaller premiums this week with more beans expected to arrive from plantations, while worries about dry weather pushed up the price of Vietnamese coffee, dealers said on Thursday.
Cocoa prices were under pressure from lagging origin sales, and with industry already well covered, dealers said it was difficult to see a sustained rise in prices in the short-term.
May cocoa on Liffe fell 8 pounds or 0.6 percent to 1,418 pounds a tonne.
"We're hearing origin have been unable to sell into the market because trade are not willing to pay up at the levels they are looking for, and trade appear to be in no desperate rush to buy," said Justin Grandison, head of cocoa brokerage at ABN Amro Markets.
"The same can be said for industry who have healthy fixed forward cover."
May cocoa futures on ICE were off $13 or 0.6 percent at $2,118 per tonne.
(Additional reporting by Nigel Hunt; Editing by Alison Birrane)