Sugaronline Editorial - Kinda, sorta, maybe, all right then, fine! By Meghan Sapp
Published: 03/03/2017, 12:33:00 PM
Wilmar and QSL have come to an agreement, sort of, almost.
With the start to Australia’s crush just three months away, political forces from the regional and federal level came crashing down on Wilmar and Queensland Sugar Ltd. this week to finally come to a deal rather than continue with the impasse that has dragged on for more than a year. At last, after 11 hours of arbitration, the two sides came to an in-principle agreement, but the fat lady has yet to sing.
As the head of QSL said following the announcement, there is still a lot of work to be done to get a detailed agreement to the 1,500 growers supplying Wilmar that will allow them to sell and market sugar via QSL if they so choose. It’s a start, however, and a start is closer to the finish than things were a week ago.
Between a failed attempt by the Liberal party to force arbitration to the Queensland government stumping the fees for a former Supreme Court judge to lead Thursday’s 11-hour mediation, to the deputy Prime Minister making all sorts of threats if the deed didn’t get done, there was little choice for QSL and Wilmar but to come to a deal. As the Opposition leader said, the two parties had to “get over themselves” so the crush could start under the securest conditions possible.
It appears that in the end, no matter what the details end up being, it is likely at least two-thirds of Wilmar’s Australian sugar production is at risk of being marketed by QSL rather than by itself. Considering that the company controls about half of Queensland’s production, it could turn the sugar giant into just a lowly miller, forced to make its margins from milling rather than the exciting world of trading.
But ever the hedger, with such a risk at stake it should then come as no surprise that Wilmar would hedge such a risk with its record purchase of 1.2 million metric tonnes of white sugar from the March expiry this week. It’s not an isolated move, of course, as the company has taken delivery from seven of the last eight contract deliveries but it does help to secure supplies of refined product while high raw prices ensure thin margins and the whites market remains in deficit through at least the end of year.
That way, whatever the growers leave Wilmar to export from Australia come the latter half of the year when the raws market swings back into deficit and boosts refining margins, their backs are covered. Wilmar already got the cheapest whites possible without taking on the risk of the low refining margin to secure its supplies, so Aussie raws can be placed wherever the best price presents itself.
Unless, of course, they don’t sort out a deal in the next 11 weeks or so, in which case the 11th hour could change everything.