ICE could shake up London sugar with container delivery
* Use of containers for sugar transport increasingly popular
* Contract revision likely to be considered
* Users hope ICE will introduce cross margining
* Brokers ask for shorter trading day
LONDON, Aug 20 (Reuters) - The new owners of London-listed white sugar futures may breathe fresh life into the contract by offering container delivery, catching up with a growing trend in the industry.
The Intercontinental Exchange (ICE), which already owns a U.S.-listed raw sugar contract, is setting up a committee to review the less liquid London-listed contract, part of its purchase of NYSE Euronext for $8.2 billion.
With about a third of the 25 million tonne per year world refined sugar trade shipped in containers, traders see that change as a major focus for post-purchase discussions, along with margin requirements, use of lower quality sugars and trading hours.
Currently, the white sugar futures contract only accepts deliveries in large bulk vessels, which some users say is outmoded given the quick growth of cheaper containers, increasingly the preferred way of transport in the international physical market.
"There is more and more need for a container solution, I think ICE should do something about it," a source at a brokerage said. "Containers are getting more important."
Liffe had looked at introducing a container delivery option two years earlier, but a study found introducing it would be technically complex, given a shortage of containers at some ports.
However, new ownership and the increase of container usage was seen adding a fresh sense of urgency.
"I am not sure there is an easy solution but I think they (ICE) will be looking at it as a much greater percentage of white sugar trade is moving in containers," said Jonathan Kingsman, head of agriculture at data provider Platts.
Shipping in containers, which can transport up to 27 tonnes of bagged white sugar, is a cheaper and more flexible solution than using conventional bulkers, which generally transport 14,000-20,000 tonnes of sugar at one time.
Containers are also more suitable for buyers with limited financial resources and volume requirements.
More than 40 percent of the white sugar exported by top supplier Brazil last year was shipped in containers, said Leonardo Bichara Rocha, senior economist at the International Sugar Organization.
"I think the simplest and best solution would be to say that if a buyer wants containers and if containers are available then the seller has to be ready to stuff the sugar into containers, passing the extra costs onto the buyer," the brokerage source said.
A spokeswoman at ICE said the exchange continues to hold discussions with London softs market participants and that its goal is to ensure that futures contracts remain relevant hedging mechanisms for customers.
LIQUIDITY BOOST WANTED
Market players also suggested ICE should lower margin requirements for users of both the U.S. raw sugar and London white with offsetting positions on the two contracts.
"I think they should look at cross margining between one contract and the other to reduce margin requirements," said James Kirkup, head of sugar brokerage at ABN AMRO.
"That might bring liquidity to the market, which is what they want; they want people to trade more."
Another option floated is the launch of a new refined sugar contract for 150s ICUMSA (International Commission For Uniform Methods Of Sugar Analysis) sugar, a lower grade than the currently traded 45s ICUMSA white sugar.
Sucden sugar broker Nick Penney said ICE could also launch futures spread between the two white sugar contracts and each of them and the raw sugar contract.
But some opposed the launch of new contracts, fearing it might dilute the already slim white sugar volumes.
A better option would be to make it possible to deliver 150s ICUMSA sugar at a discount against 45s ICUMSA sugar futures sales, two London-based dealers said.
This would increase the amount of sugar that can be delivered particularly from origins such as Brazil, India, Thailand and Pakistan.
Brokers also hope ICE will accommodate their request to cut the daily trading time to concentrate volumes.
"If you look at how the market trades, there are periods early in the morning and late in the evening where you have very low volumes," said Marex Spectron sugar broker Tony Sheridan.
"It would be better to trade the same volumes in a shorter amount of time."