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Weekly: Rise In ICE Raw Sugar Supported By Extended Short Covering, Reduced Indian Output

24 May 2020 7:33 pm
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Mumbai (Commodities Control) – July contract of ICE Raw sugar ended over 5% higher for the week ended 22 May as compared with less than a percent’s rise Last week. Sugar managed to stay firm through greater part of the week, until its closing on Friday.

Sugar#11 closed weaker on 22nd May, after hitting near two-month highs in the previous session, with oil prices sliding on rising U.S.-China tensions and doubts over the pace of a recovery in demand following the coronavirus crisis.

NY sugar prices were undercut by weakness in crude oil and the Brazilian real. July raw sugar settled down 0.5%, at 10.93 cents per lb, after peaking at 11.32 cents on Thursday, its highest since late March. August white sugar settled up 0.4%, at $366.90 a tonne.

Crude oil prices on Friday fell nearly 2%, which was negative for ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol production, thus boosting sugar supplies.

On technical charts, the short covering drive continues alongside long positions being added. Chart indicates short covering for 4th week in a row. According to the latest CFTC data for the week ended 19th May, managed money in NY sugar cut its net shorts to 36,117 contracts vs 51,423 contracts last week, down 15,306 contracts.

Managed money added 11,044 contracts to the long side taking it to 95,862 contracts for the week ended 19th May.

Meanwhile, open interest moved up by 8951 contracts at 11,70,536 contracts.

Strength in crude oil, hopes of demand revival and lower Indian output of sugar supported NY sugar on Monday. July raw sugar settled up 0.42 cents, or 4%, at 10.80 cents per lb.

Monday's 7% jump in crude oil prices to a 2-month high gave sugar prices a boost.

Sugar prices found support from reduced sugar production in India, the world's second-largest sugar producer, after the Indian Sugar Mills Association (ISMA) reported on Monday that India Oct-May 15 sugar output fell 19% y/y to 26.5 MMT.

The Brazilian real gained more than 2% against the dollar. Sugar prices are seeing support from concern about possible disruptions of sugar exports from Brazil.

The CEO of Brazil's Santos port, Brazil's biggest port, said last Wednesday that port workers are starting to fall ill from the spread of the coronavirus, which may lead to restricted operations at the port and disruption of sugar exports.

The uptrend continued through Wednesday, when raw sugar prices surged past 11 cents, touching 2 months high.

However on Thursday and Friday, NY sugar was struck by profit booking. Sugar prices on Thursday gave up early gains and moved lower on concerns about weak ethanol demand in Brazil as the coronavirus pandemic ravages the country's economy.

On Thursday, July raw sugar settled down 0.21 cent, or 1.9%, at 10.98 cents per lb, after peaking at 11.32 cents.

Dealers noted the July contract had moved to a premium to October during the recent uptick in prices, indicating some concern about near-term supplies. The recent rally, thus, created opportunity for profit-taking.

Sugar market participants are worried about potential disruption to Brazilian supplies are topping up inventories. Brazil is closing in on Russia to become the world's No. 2 COVID-19 hot spot behind the United States.

The Real on Friday fell 0.15% against the dollar as it attempts to stay above last Thursday's record low of 5.970 reals/USD.

Meanwhile, fall in sugar prices was aided by Thursday's projections from the USDA's Foreign Agricultural Service (FAS). It forecast global 2020/21 sugar production to climb 13.2% y/y to 188.1 MMT and that global ending stocks will fall by only 2% y/y to 43.55 MMT.

"For most, prices past 11 cents made them somewhat uncomfortable. We largely agree but would (note) traders and consumers seem to have greater willingness to hold more inventory," said Commonwealth Bank of Australia.

Support and Resistance for sugar #11 lies at 10.52 cents and 11.20 cents per lb, respectively.

(Commodities Control Bureau)

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