* March contract deliveries may be at 300,000-500,000 T
* Narrowing March/May spread shrinks sugar delivery
Feb 29 (Reuters) - The amount of sugar that could be delivered against the expiring March raw sugar contract on Wednesday is now under 1 million tonnes, and brokers said that amount could fall further because there may not be enough sugar available for delivery.
Open interest in the March contract on the ICE Futures U.S. exchange stood at 18,371 lots as of Tuesday, exchange data showed, down 10,506 lots from the previous session. That is equivalent to 933,290 tonnes of raw sugar, below the 1.0 million tonnes traders previously said might be delivered.
"If we lose 10,000 to 12,000 (contracts) today, you could see deliveries going down to 6,000 to 8,000," a broker said. That would be equivalent to around 300,000 to 400,000 tonnes of sugar. Some brokers believe as much as 500,000 tonnes may still be delivered.
Traders expect Cargill to take most of the deliveries when March goes off the board, as has been the case in many deliveries. Open interest in the contract has dropped over 45,000 lots in the last four sessions.
Deliveries are closely watched in the world sugar market as an indicator of demand and possible trade flows.
A large delivery is usually seen as a sign of slow demand, with owners who are unable to sell the sweetener putting it up on the futures board. But a big trade house taking delivery suggests it is confident of finding a home for the sugar, and that is considered supportive for futures longer-term, brokers said.
Traders said a small delivery -- such as last October when the amount delivered was a five-year low -- can mean cash demand is strong and keeping sugar from going on the board.
For Wednesday's March expiration, traders will carefully monitor the spread.
The March/May spread on ICE has narrowed from levels over 1.00 cent last week to around 0.60 to 0.65 cent during Wednesday's trade, premium March, an indication that the amount to be delivered is getting smaller.
The origins for this sugar delivery are expected to be Thailand, Central America, Brazil and the Philippines.
Traders said growers in Central America may divert sugar which had been bound for ICE and ship it to Mexico and the United States where supplies are tight and prices are high.
The amount of Thai sugar available may also not be as high as usual because of port congestion in Bangkok. But sugar growers in the Philippines would like to deliver sugar to the board to unload low quality raws, the dealers said.
There is said to be demand from the Middle East ahead of the Moslem holy fasting month of Ramadan. Chinese restocking of state reserves was one of the reasons advanced by brokers for a large delivery, though "it looks like the idea of Chinese buying aggressively is fading a bit," one analyst said.