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Weekly: Speculative Long Liquidation, Slippery Crude Oil Takes Sweetness Off ICE Raw Sugar; Net Longs Decline By 52%

15 Mar 2020 6:30 pm
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Mumbai (Commodities Control) – Raw sugar prices collapsed over 10% in the past week; continuing the declining trend for the third week in a row. For the week ended 6th March, Sugar #11 lost close to 8%.

On Friday, though, Raw sugar on ICE futures did manage to climb higher on the back of bounce in crude oil due to Short covering. Sugar #11 was also aided by tightening supplies and broad-based gains in commodity markets.

May raw sugar settled up 8 cents, or 0.7%, at 11.70 cents per lb, rebounding from a 5-1/2 month low of 11.53 cents set on Thursday. May white sugar settled at $355.00 per tonne, up $0.90.

On technical charts, the net longs were cut dramatically by over 52% W/W. The latest CFTC data for the week ended 10th March showed that the net long for managed money traders’, in Sugar #11, stood at 67,889 contracts, down 74,139 contracts from the previous week. Open interest was timidly higher by 4572 contracts, after tumbling for 3 weeks in a row, at 13, 16,288 contracts.

Raw sugar prices extended the downslide from the week ended 6th March, when it settled under 13 cents on Friday’s closing. Monday saw bloodbath across global commodities and financial markets as crude oil prices dived 30%, after Saudi Arabia launched a price war with Russia following the collapse of their three-year supply pact. Raw sugar futures on ICE sunk to four-month lows on Monday; settled down 41 cents at 12.61 cents per lb after hitting a low of 12.18 cents.

Amid the demand concerns rising out of crashing oil prices and coronavirus fear, however, experts did not ignore the technical pattern in sugar. Sucden financial noted it to be a doing of speculative long liquidation.

Tuesday saw Raw sugar futures on ICE edge higher, boosted partly by gains in crude oil, Brazilian Real and other commodity markets. May raw sugar settles flat 0.02 cents at 12.59 cents per lb on Tuesday. May white sugar rose $2.10, or 0.6%, to $357.70 a tonne.

Crude oil prices on Tuesday rallied more than 8%. Even Brazilian real on rose by 1.52% against the dollar, which sparked some short-covering in sugar futures.

Come Wednesday and sugar prices, again, buckled under the weakness in crude oil and a slump in the Brazilian real. Crude oil prices on Wednesday fell more than 4%.Oil tumbled prompting fears that Brazil will raise sugar output at the expense of ethanol. Rising sugar production forecasts continue to weigh upon sugar prices, as well. Sucden on Wednesday reported that Brazil 2020/21 Center-South sugar output will climb 24% y/y to 33 MMT.

May raw sugar fell 2.7%, to 12.26 cents per lb, heading back toward a 4-1/2 month low. May white sugar closed down 0.7% to $359.20 a tonne. The Brazilian real on Wednesday tumbled 1.63% against the dollar, just above Monday's record low of 4.791 Reals/USD.

The downtrend in global commodities market drags raw sugar prices down to 5 Month lows on Thursday, as global stocks entered a bear market and oil slumped after U.S. President Donald Trump imposed limits on travel from much of Europe to stem the spread of the coronavirus.

Sugar prices on Thursday sold off sharply on a plunge in the Brazilian real and on weakness in crude oil prices. The Brazilian Real on Thursday fell 0.22% against the dollar and sank to a new record low of 5.0258 Reals/USD.

May raw sugar settled down at 11.62 cents per lb, having hit a more than five-month low of 11.53 cents. May white sugar lost $5.1 to settle at $354.10 a tonne.

Brazil's Petrobras cut gasoline prices at refineries in the country by almost 10% on Thursday, a move that could boost sugar production and reduce ethanol output.

Rabobank experts did note sugar’s strong correlation with energy prices leading to the downfall for the week-ended 13th March, however, continue to hold bullish approach on account of Thailand’s supply situation.

Meanwhile, The Indonesian government has issued import permits for 1.44 million tonnes of raw sugar for industrial use for the first half of 2020 along with additional import permits of 550,000 tonnes of raw sugar for household consumption.

Dealers are watchful of the strength of the premium of white over raw sugar, indicative of demand holding up well. Whites can react more quickly to demand trends as the sugar is ready to be consumed while raws have to be refined.

Nearby premiums on both raw sugar and white sugar also provide evidence the physical market is reasonably tight.

However the extent to which sugar production in Centre-South Brazil will rise remains unclear.

Recently, Unica reported that Brazil's 2019/20 Center-South sugar production Oct-through-Feb rose 0.47% y/y to 26.487 MMT. The percentage of sugar cane crushed for sugar fell to 34.46% from 35.40% last year and the percentage of cane crushed for ethanol production rose to 65.54% from 64.60% last year.

Raizen forecast a boost in Brazil 2020/21 sugar output by 6 MMT.

"Compared to 2019-20, Brazil could increase its sugar production by 4 to 5 million tonnes, which would push the world to an almost balanced situation in the next marketing year," consultancy Agritel said in a report.

Meanwhile, Indian mills have so far contracted to export 3.5 million tonnes of sugar in the 2019/20 marketing year, a trade body said. The country, a top sugar producer, is expected to export 5 million tonnes this year.

Support and Resistance for sugar #11 lies at 11.38 cents and 12.26 cents/lb, respectively.

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