Delayed sugar deliveries raise debate over exchange rules

Delays to deliveries of sugar sold through a major commodity exchange in New York have sparked a debate among traders about whether the current rules on transactions are sufficient to protect buyers.

Wilmar International Ltd., one of the world’s largest sugar traders, has yet to load some vessels with quantities of the commodity that were sold when March futures expired on Intercontinental Exchange more than two months ago, according to people familiar with the matter, who asked not to be identified because the information is private. The company isn’t breaking any exchange rules, but some traders argue the delays aren’t justified.

The issue is shining a light on how some traders use technicalities and loopholes in market rules. Intercontinental Exchange doesn’t state a time frame for vessels to be loaded after futures expire as long as the seller pays demurrage, the cost for holding back a vessel — something that’s currently happening, the people said.

Agriculture commodities traders Sucres et Denrees SA and Louis Dreyfus Co. bought a combined 1.3 million metric tons of sugar when March futures expired. Wilmar was the main seller, delivering more than 80% of that. The March contract expired at 22.58 cents a pound, and the market is now trading about 15% below that, a potential loss for buyers who are still waiting for the sugar. 

Some traders argue delays were to be expected as the lines to load ships at ports in Brazil, the world’s largest producer, were already long when the exchange delivery took place. Several terminals in the nation were also scheduled to undergo maintenance, the people said.

Some traders raised the issue with ICE during New York Sugar Week, when traders from across the world gather for a round of conferences, meetings and parties that culminated in the sugar dinner on Wednesday. There are concerns that more delays will happen after Wilmar sold even more sugar — 1.6 million tons — when May futures expired. 

ICE declined to comment. Wilmar, Louis Dreyfus and Sucres et Denrees didn’t immediately respond to requests for a comment.

This isn’t the first time this issue has come up. ICE and a committee of traders considered the topic in 2015, ultimately deciding against adding a clause to futures contracts stating that “time is of the essence” for the delivery.

Some traders also said similar delays happened when the October contract expired last year, according to the people.