FALL IN SUGAR CONTRACT VOLUME HAS BEEN BITTER PILL FOR MATIF

FALL IN SUGAR CONTRACT VOLUME HAS BEEN BITTER PILL FOR MATIF

Despite a continuing decline in volume on its white sugar contract, officials at Matif, the French futures exchange, aren't willing to call it quits.

Nor are they willing to join forces with Matif's archrival in London, the Futures and Options Exchange, or FOX, which also suffered a decline on its sugar contracts in 1991 but is continuing to gain market share at the expense of Paris."We've tried everything, there's nothing more we can do," said Jean Sicard, a spokesman for Matif, or Marche a Terme International de France.

Indeed, a host of measures put in place over the past two years could not arrest the contract's slide in 1991, when volume dropped 34 percent to 199,413 lots, from 302,908 lots in 1990. That followed a 20 percent drop in volume between 1989 and 1990.

The most important changes include a sharp cut in trading fees and a switch in the contract quotation from French francs to dollars - putting it on equal footing with sugar contracts in London and New York.

Matif also moved to improve the market's clearing system and boost its electronic information service to enable immediate currency exchange calculations.

"The problem looks to be more of a structural nature in soft commodities rather than of any physical problem with the Matif," Mr. Sicard said. "There are fewer players on the market, and they are less active."

The decline and then stability of sugar prices, he said, has taken the wind out of sugar futures, which, like all commodities futures products, serve to protect producers and consumers from price volatility.

Less than 10 trading houses account for most Matif sugar trading, dominated by perhaps three companies. "When one of the three players has difficulties, it tends to kill the whole market," Mr. Sicard said.

What's more, European action in sugar appears to be moving toward London, where the FOX experienced only an 11.5 percent drop in volume on its white sugar contract, to 306,154 lots from 347,333 lots in 1990.

"The white sugar volume has been fairly consistent," said Jackie Ralph, marketing manager for the FOX. "The main thread of the business is now in London, and that's been the case for the last two years."

Michael Overlander, head of Sucden U.K. and chairman of the Fox's sugar futures market committee, agreed that a shakeout and down-sizing among the big commodities trading houses and stable prices over the past year have taken the wind out of the sails of the sugar contract in London.

"Considering the overall environment, I'm not that depressed at all about a 10 percent or so drop in volume," Mr. Overlander said.

He predicted 1992 would be "much healthier," noting, "It's already off to a good start."

Despite the plummet in Matif's sugar volume - the contract has been in a free fall since 1986, when 530,000 lots were traded, representing 26 million tons of sugar, or 10.8 percent of all sugar futures volume worldwide - Paris authorities have rejected any notion of merging its contract into the more powerful product of the FOX.

Last spring, the London exchange offered to hand over one of its other contracts to Paris in exchange, but Paris wasn't yet ready to give in, and broke off talks.

"There's no need to have two white sugar markets in Europe, everyone knows that," said Mr. Overlander, who noted that his company, Paris-based Sucres et Denres, or Sucden, is constrained to operate on both markets.

He characterized the competition as a "friendly battle" that would likely end in a further loss of business for Paris.

"I'm convinced London's contract will survive," he said. "I don't know if I can say the same for Paris."