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Weekly: ICE Raw Sugar Settles Flat-to-Negative on Concerns of Weak Demand, Technical Buying

14 Jun 2020 2:17 pm
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Mumbai (Commodities Control) – After a 10% rise in the prior week, raw sugar edged lower by 1.25% on recurring concerns of weak demand. July contract of Sugar #11 gave up 15 points for the week ended 12th June, while December contract was flat-to-negative- down 5 points.

On Friday, Raw sugar prices on ICE closed below the 12-cent mark, with investors reassessing the risk that a resurgence of coronavirus infections will put more pressure on the global economy and hurt sugar demand.

July raw sugar settled down 0.07 cents, or 0.6%, at 11.87 cents per lb, having hit a low of 11.60 earlier in the session. August white sugar settled down $4.40, or 1.1%, at $383.40 a tonne.

Sugar prices on Friday fell to 1-week lows on increased Brazil sugar output and slack ethanol demand. Unica reported Friday that Brazil's Center-South sugar production in the second half of May rose 36.2% y/y to 2.548 MMT, with the percentage of cane used for sugar climbing to 47.35% in 2020/21 from 35.28% in 2019/20.

Sugar prices were also under pressure Friday from weakness in crude oil and the Brazilian Real. WTI crude oil fell to a 1-1/2 week low Friday, which undercut ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing to sugar production rather than ethanol production, thus boosting sugar supplies.

The Brazilian real on Friday tumbled 2.09% against the dollar.

It can be said that weak fundamentals and fund buying, coupled with hefty short covering, kept NY sugar range bound.

In the weekly update from CFTC, managed money flipped to net longs for the first time in 11 weeks. This was achieved through hefty short covering and new buys for 7th week in a row. According to the CFTC data for the week ended 9nd June, managed money’s net position in NY sugar is 12,024 contracts long vs net shorts of 13,921 contracts last week.

Managed money added 3172 contracts to the long side taking it to 109,786 contracts for the week ended 9nd June, while 22,773 contracts were taken out from the short side.

Meanwhile, open interest moved up by 2610 contracts at 11,94,992 contracts.

Fundamentally, escalating concerns about the economic outlook are likely to prompt a drop in sugar.

The period during 8th-12th June was full of crests and troughs, mostly tracking movements in crude oil prices and Brazilian currency. On the first two days, NY sugar moved in a tight range after slipping from last week’s 3 month’s high. However by mid-week, ICE sugar prices were underpinned by Brazilian shipment delays and tightness in white sugar supply. However on Thursday sugar prices witnessed a sharp fall tracking weak crude oil and easing concerns around sugar deficit.

Bearish Fundamentals

Sugar prices also came under pressure on Thursday after S&P Global Platts Analytics cut its global 2019/20 sugar deficit estimate to 2.5 MMT from a 7.6 MMT forecast in March due to higher sugar production in Brazil and lower global sugar consumption due to the coronavirus pandemic.

Goldman Sachs said the commodities rally had gotten ahead of fundamentals, noting sugar was set for historically large production this year.

Brazilian mills produced 8 million tonnes of sugar in the first two months of the new crop compared to 4.8 million in the same period a year earlier, cane industry group Unica said. Mills are allocating as much cane to sugar production as possible, as ethanol sales continue to lag volumes seen last year by 30% due to stay-at-home measures.

The rally "is entirely based on a rush to buy 'risk on' assets and sugar is one of those," analyst Robin Shaw of Marex Spectron said in a note.

Shaw said market fundamentals were less supportive at current prices because it is more attractive for mills in Center-South Brazil to use cane to make sugar rather than ethanol, which could lead to a considerable global surplus.

"The market will, possibly, try to consolidate at around current levels with, perhaps, a new range in place with support at 11.50 but resistance above 12.40," said a London-based broker.

Experts see that the Brazil mills are producing Sugar but might switch back to producing ethanol soon if prices continue to improve for the ethanol. Reports indicate that little is on offer from India in part due to logistical and harvest problems caused by the Coronavirus. India is thought to have a very big crop of Sugarcane this year but getting it into Sugar and into export position has become extremely difficult. These problems should ease as the attack of the virus eases in the country. Thailand might also have less this year due to reduced planted area and erratic rains during the monsoon season.

Support and Resistance for Sugar #11 for October contract lies at 11.55 cents and 12.49 cents per lb, respectively.

(Commodities Control Bureau)

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