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Weekly: ICE Raw Sugar Ends Nearly Flat Aided By Strong Crude Oil, Fresh Fund Buying

30 May 2020 5:23 pm
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Mumbai (Commodities Control) – Despite a strong closing on Friday, raw sugar futures ended a tad bit lower for the truncated week ending 29th May.

July contract of ICE Raw sugar closed the week 0.07 cent or 0.6% weaker as compared with 5% higher weekly settlement a week prior.

On Friday, July raw sugar settled up 11 cents, or 1%, at 10.91 cents per lb, recovering later in the session. August white sugar settled up $0.70, or 0.2%, at $362.20 a tonne.

Firm Crude, Strong Real Cushioned Prices

Sugar prices on Friday settled higher following strong crude prices. Higher crude prices benefit ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production, thus reducing sugar supplies.

Sugar closed up despite a weak Brazilian currency, which dealers say can lead to increasing selling from the country in New York raw sugar futures.

Through the holiday-shortened week, crude oil and Brazilian currency were the major deciding factors. Most active sugar contract on ICE, on Tuesday, managed to settle past 11 cents on the back of strong crude oil and positive Real.

Market sentiments were additionally bullish supported by a growing line-up of vessels waiting to load at the major sugar export port of Santos in Brazil.

On Thursday as well, sugar managed to settle flat after falling to over one week low, as crude oil came to its rescue. July raw sugar closed stable at 10.80 cents per lb, after hitting 10.55 cents early in the session, a 1-1/2 week low.

Higher Production, Demand Concerns Keep a Tight Lid on Price Gains

Unica reported Tuesday that Brazil’s total ethanol sales in the Center-South region fell 22% y/y to 1.055 bln liters the first half of May. Reduced ethanol demand will encourage Brazil's mills to produce less ethanol and more sugar.

Also, Unica reported that Brazil's Center-South sugarcane crush in the first half of May rose 8.76% y/y to 42.46 MMT, above expectations of 41.7 MMT. Sugar production in the first half of May surged 55.8% y/y to 2.5 MT, with the percentage of cane used for sugar climbing to 47.2% in 2020/21 from 36% in 2019/20.

Meanwhile simmering U.S.-China tensions over Hong Kong weighed is offsetting optimism about the reopening of the world economy. This, coupled with higher output forecast from India pulled July raw sugar on ICE to 10.80 cents during settlement on Wednesday.

USDA's Foreign Agricultural Service (FAS) projected that India's 2020/21 sugar production will climb 17% y/y to 33.705 MMT. FAS also projected that India's 2020/21 sugar ending stocks will climb 8.8% y/y to 17.419 MMT.

Last Thursday, USDA's Foreign Agricultural Service (FAS) forecast that global 2020/21 sugar production will 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.

Technical Chart Support

In the weekly update from CFTC, managed money funds continued the short covering drive for 5th week in a row. The week on week change came via both reduced shorts and new buys. According to the latest CFTC data for the week ended 26th May, managed money in NY sugar cut its net shorts to 19,573 contracts vs 36,117 contracts last week.

Managed money added 8309 contracts to the long side taking it to 104,171 contracts for the week ended 26th May.

Meanwhile, open interest moved up by 12,172 contracts at 11,82,708 contracts.

Experts, however, are not outright bearish in case of sugar. The Brazil mills are trying to cover the lack of White Sugar in the market and UNICA has shown the change in the production mix for the last several reports.

Market is closely watching the reports that indicate little is on offer from India in part due to logistical and harvest problems caused by the Coronavirus. Thailand might also have less this year due to reduced planted area and erratic rains during the monsoon season. There are reduced flows from rivers from China as well.

Support and Resistance for sugar #11 lies at 10.56 cents and 11.14 cents per lb respectively.

(Commodities Control Bureau)

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