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Weekly: ICE Raw Sugar Depreciates For 2nd Consecutive Week On Virus Threat To Global Demand; Sucden Eyes The Spreads

9 Mar 2020 7:30 am
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Mumbai (Commodities Control) – Past week continued the trend of negative weekly closing for raw sugar, as the active contract on ICE plunged close to 8% for the week-ended 6th March. While on Friday, pressured by a potential weakening in demand linked to the global spread of the coronavirus, raw sugar slid to a three-month low.

May raw sugar settled down 40 cents, or 3%, at 13.02 cents per lb, after hitting a three-month low of 12.95 cents. May white sugar settled down $9.70, or 2.6%, at $370.30 per tonne, having hit its lowest level since early January at $369.50.

Sugar prices on Friday fell sharply with NY sugar at a 3-month low and London sugar at a 1-3/4 month low on weakness in crude prices and a plunge in the Brazilian real. Crude oil plunged more than 10% Friday to a 2-3/4 year low that may affect ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward sugar production, thus boosting sugar supplies.

Dealers noted that gains during the market's strong rally in January and February, when the May contract climbed from a 2020 low of 13.20 cents on Jan. 2 to a peak of 15.29 cents, had been erased as funds liquidated long positions.

The sliding trend began from the week’s start, when Raw sugar prices on ICE slid to a seven-week low on 2nd March as funds scaled back long positions. Spread of the global coronavirus outbreak has been dampening risk appetite across financial markets. May raw sugar settled down 0.28 cents, or 2%, at 13.86 cents per lb. May white sugar fell by $4.20, or 1.1%, to $392.40 a tonne.

Global demand concerns have weighing on sugar prices after Monday's futures data showed eight sugar traders delivered 956,100 MT of sugar against expiring March NY sugar futures contracts, the fourth-largest March delivery in data going back to 1989 and a sign of weak global demand.

Another bearish factor for sugar was an increase in global supply after Brazil's Trade Ministry on Monday reported Brazil Feb sugar exports rose 12.4% y/y to 1.309 MMT.

While on Tuesday, Global sugar prices continued to extend their week-long slide as ICE raw sugar dropped to a 1-3/4-month low and as London white sugar fell to a 1-1/2-month low.May ICE world sugar on Tuesday closed down 0.36 percent, and May London white sugar ended down 0.69%.

Weakness in the Brazilian Real was again bearish for sugar prices. The Brazilian real on Tuesday sank -0.84% to a record low against the dollar of 4.5166 Reals/USD. A weaker real encourages export selling by Brazil's sugar producers.

The downhill movement of sugar prices carried through midweek, as Raw sugar on ICE continued to be under pressure of fears over the coronavirus outbreak. A slump in the Brazilian Real also fueled fund selling of sugar futures on Wednesday. The real tumbled 1.46% against the dollar Wednesday and posted a record low of 4.5744 Reals/USD. May raw sugar settled down 29 cents, or 2.1%, at 13.47 cents per lb, after hitting its lowest since early January at 13.52 cents.

In fact, a surprise rate cut by the U.S. Federal Reserve on Tuesday has so far done little to stem these fears.

On Thursday, once again, global growth concerns overshadowed the global supply deficit scenario in sugar due to which, raw sugar prices on the ICE hit a 2-month low. Fear that the coronavirus outbreak will hit global growth hard persisted across the financial markets. May raw sugar settled down 5 cents, or 0.4%, at 13.42 cents per lb, after hitting its lowest since early January at 13.35 cents.

Amid virus outbreak threatening to disturbs the global demand picture, positive factor for sugar came from the International Sugar Organization (ISO) that raised its global 2019/20 sugar deficit estimate to an 11-year high of 9.4 MMT from a November estimate of 6.1 MMT.

Sugar also has support from reduced production in India. The India Sugar Trade Association (ISMA) on Tuesday reported that sugar production in India, the world's second-largest sugar producer, dropped sharply by 22% y/y to 19.489 MMT during Oct-Feb.

Reduced sugar output from Thailand, the world's fourth-biggest sugar producer, is another positive in the kitty. Thailand's Office of the Cane and Sugar Board on Wednesday reported that Thailand's sugar production from Dec 1 through Mar 2 was down by 21.3% y/y at 8.1 MMT. The Thai Sugar Millers Corp on Feb 7 forecasted that Thailand's 2019/20 sugar production would drop 35% y/y to 9 MMT from 14 MMT in 2018/19 as dry conditions reduce sugarcane yields.

"The Coronavirus threat continues to snowball and drag us lower. However, the spreads seem to be indicating (tightening supply)," Sucden Financial said in a note.

The latest CFTC data for the week ended 3rd March showed that the net long for managed money traders’, in Sugar #11, stood at 142,028 contracts, down 47,148 contracts from the previous week. Open interest tumbled for the 3rd week by 71,947 contracts to 13, 11,716 contracts.

Support and Resistance for Sugar #11 lies at 12.59 cents and 13.73 cents/lb, respectively.

(Commodities Control Bureau)

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