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Weekly: Sellers Take Over ICE Raw Sugar As Managed Money Moves To Net Shorts ; Virus Fear Cuts Global Consumption Estimates

30 Mar 2020 8:26 am
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Mumbai (Commodities Control) – ICE raw sugar settled timidly higher by 19 cents for the week, putting a brake on 4 weekly prices declines. The first half of the week managed to climb 76 points to touch levels close to 11.70 cents. However renewed economic growth fears caused by the coronavirus pandemic outweighed stimulus efforts by global policymakers. Sugar #11 pared most of its gain moving towards the weekend.

According to the latest CFTC data for the week ended 24th March,Sugar #11 managed money has switched their net long position to net short position .They were net short for the week at 7972 contracts as compared with net long position of 3590 contracts in the prior week. Managed money traders has been net short for the first time since week ended 10th December last year.

Managed money trader were seen liquidating their long position .They reduced their long postion by 13,983 contracts, while short positions were reduced by 2421 contracts. Meanwhile, Open interest dipped by 17,072 contracts at 12, 55,442 contracts.

Fundamentally, a 6% plunge in WTI crude oil prices on Friday undercut sugar prices. While, weakness in the Brazilian real was bearish for sugar as the Real fell 0.96% against the dollar and was only modestly above last Wednesday's record low of 5.2523 reals/USD.

On Friday, May raw sugar settled down 23 cents, or 2%, at 11.10 cents per lb.

However, active contract of white sugar settled up 30 cents at $350.70 a tonne, having closed up 3.4% on Thursday, on concern about supply disruptions in India.

In India, several ports and terminals have declared force majeure due to shutdowns from the coronavirus pandemic. The Indian Sugar Mills Association (ISMA) on Wednesday said that India's cane crushing may be affected during the 3-week long lockdown imposed by the Indian government to slow the spread of the coronavirus.

For raw sugar, however, this wasn’t the case at the beginning of the week. ICE Raw sugar had managed to consolidate near its 1 ½ year lows, as May contract closed higher on Monday.

Sugar prices found support on concern about sugar transportation and logistical disruptions, but were undercut by weak crude oil prices and a slide in the Brazilian Real.

May raw sugar settled up 13 cents at 11.04 cents per lb and May white sugar settled down 1.1%, at $340.60 a tonne.

Dealers noted that the pressure from fund selling had abated with a long position now liquidated, and the market may consolidate in the short term.

Sugar found support on the report that India is likely to export 4.5 million tonnes of sugar in 2019/20, down almost a fifth from an earlier estimate, as the price drop makes overseas sales unprofitable for mills.

Come Tuesday, when raw sugar futures on ICE managed to settle at one week’s high, buoyed by a rebound in crude oil prices and strength in the Brazilian real.

May raw sugar settled up 23 cents, or 2.1%, at 11.27 cents per lb. However, May white sugar settled down $1.70, or 0.5%, at $338.90 a tonne.

Oil jumped 3% on Tuesday, supported by steps by the U.S. Federal Reserve to bolster the economy and hopes the United States will soon reach a deal on a $2 trillion coronavirus aid package. While, the Brazilian real on Tuesday rose 1.08% against the dollar.

Raw sugar futures on ICE rose for a third consecutive day on Wednesday rallying to 10 days high, buoyed by a rebound in global equities and as traders started to price in stockpiling linked to the coronavirus pandemic.

May raw sugar settled up 1.2%, at 11.41 cents per lb. May white sugar was little changed at $338.90 per tonne.

Strength in the Brazilian real was positive for sugar as the Real rallied 1.97% to a 1-week high against the dollar.

But the price rise trend came to an end on Thursday, when May raw sugar settled down 0.7%, at 11.33 cents per lb, as oil prices had another negative day.

Brazilian sugar mills have been quick to start cane crushing in the new center-south season, processing 3 million tonnes in the first half of March, 88% more than in the same period a year earlier.

This has analysts projecting a surplus situation in global sugar market. Analyst Green Pool expects a global sugar surplus in the 2020/21 season as the coronavirus pandemic dents demand growth and the oil price war encourages a switch to more production of the sweetener in Brazil.

Brazil's oil company Petrobras cut gasoline prices again in the week, this time by 15%, the third cut since oil prices collapsed on March 9.

Rabobank estimates global 2020/21 sugar surplus of 0.6 MMT compared with a 6.7 MMT sugar deficit for 2019/20. Rabobank projects that India's 2020/21 sugar production will climb 15.9% y/y to 33.5 MMT and that EU 2020/21 sugar output will climb 4.0% y/y to 18.3 MMT.

Sugar trader Czarnikow said it has reduced its EU sugar consumption estimate by 700,000 tonnes, or 4%, for the rest of 19/20 due to the coronavirus outbreak. Its EU production deficit has been lowered to 400,000 tonnes.

However white sugar prices have more positives by it side. Indian Sugar Exim Corp said on Friday that India will miss its sugar export target this year of 5 MMT since the coronavirus pandemic is causing a shortage of labor at ports and sugar mills. Several ports and terminals in India have declared force majeure due to shutdowns from the coronavirus pandemic.

The Indian Sugar Mills Association (ISMA) on Wednesday said that India's cane crushing may be affected during the 3-week long lockdown imposed by the Indian government to slow the spread of the coronavirus.

Going forward, energy price movement and Indian sugar exports are the two areas that the market participants are going to keep an eye on.

Support and Resistance for Sugar #2 lies at 10.81 cents and 11.59 cents/lb respectively.

(Commodities Control Bureau)

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