12 August 2016 by pdonnat
Soft commodities, such as sugar and nuts, recently have had a very good run compared to hard commodities such as metals, coal and power. Sugar is up 30% this year (50% over a year) whilst hard commodities are just recovering . The fate of two Singapore-based commodity traders mirrors this divergence: Noble Group, the hard commodity trader, is struggling with a CDS trading at 30% upfront over a 5% coupon, while for Olam International, the soft commodity trader, credit premium is around 2.5%bps. In Europe, Suedzucker AG had an impressive rally as can be seen on the attached Grapple; the rally is highly related to the evolution of sugar prices over the last year. Suedzucker AG CDS is the best performer of our investment grade universe over this period, 80bps tighter. Its equity price is up 70% over the same period. We could be close to the end of this run with more supply and European deregulation. One equity analyst cut his recommendation and the stock was down 6% early in the session, recovering during the day. We know we are eating too much sugar, but we cannot stop eating it. However, in the short term, the market will want us to eat as much as sugar as an Olympic athlete to keep Suedzucker in a sweet spot.