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Weekly: Sugar#11 Settles Up on Fund Buying, Firm Crude Oil; Demand Concerns Limit Gains

21 Jun 2020 11:40 pm
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Mumbai (Commodities Control) – After a decline of 1.25% prior week, the week ended 19th June settled 1.52% higher for July futures of ICE raw sugar, while October contract closed up 1.16%. Sugar futures moved in a tight range during the week. Movements in Crude oil price and Brazilian Real were the two prime factors guiding sugar #11 through 15-19 June.

However bleak demand outlook, due to fear of resurgence of coronavirus cases in China, did limit gains in sugar price; since mid-week.

Technically, though, NY sugar was well-supported due to fund buying and reduced shorts. In the weekly update from CFTC, managed money more than doubled net longs at 29,199 contracts for the week ended 19th June. This was achieved through hefty short covering and new buys. Managed money’s net position in NY sugar was 12,024 contracts long last week.

Managed money added 5534 contracts to the long side taking it to 115,320 contracts for the week ended 16th June, while 11,641 contracts were taken out from the short side.

Meanwhile, open interest dropped 75,251contracts at 11,19,741 contracts.

On Friday, Raw sugar futures on ICE closed higher boosted by gains in crude oil and other commodity markets. NY sugar gained as crude oil rallied to a 1-1/2 week high and as the Brazilian Real climbed against the dollar.

July raw sugar settled up 0.16 cent, or 1.3%, at 12.05 cents per lb, climbing towards a three-month high of 12.27 cents set earlier this month. August white sugar settled down $2.90, or 0.8%, at $368.30 a tonne.

For the week starting Monday, NY sugar managed to settle past 12.00 cents a lb on the back of firm crude oil. Similar fundamentals underpinned sugar #11 on Tuesday as well. However Weak Brazilian currency and blurred demand outlook weighed on sugar prices; dragging the sweetener under the 12 cent mark to close at 11.89 cents per lb on Thursday.

Bearish Fundamentals

Czarnikow Group projects that with the closure of restaurants, sports arenas, and cinemas all over the world due to coronavirus lockdowns, that global sugar demand will fall this year for the first time in four decades.

Weak ethanol demand in Brazil is bearish for sugar prices as the coronavirus pandemic ravages the country's economy. Unica reported last Friday that Brazil's total May ethanol sales in the Center-South region fell 30% y/y to 1.45 bln liters.

The sugar production in the Center-South region of Brazil continues to be very high due to both a good harvest momentum and a high allocation of cane to sugar as ethanol remains depressed.

Meanwhile, plentiful monsoon rains in India have boosted the outlook for cane crops. Government data reveals, as on 19th June, the area under cane cultivation has touched 4.86 million hectares, up 1.5% from the corresponding period last year.

Sugar supplies are abundant after Unica reported last 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.

Favourable crop outlooks in India and Thailand were also seen limiting the upside. Sugar prices were undercut by the outlook for higher sugar production in Thailand after Marex Spectron on Friday forecast Thailand 2020/21 sugar production will climb by 2.4% y/y to 8.5 MMT. Thailand is the world's second-biggest sugar exporter.

Dealers said the market may struggle to breach resistance around its recent peak due to concerns about weakening consumption that have particularly impacted the whites market.

Experts see a more sideways trend in sugar, with limited upside potential at the moment. Support and Resistance for sugar #11 lies at 11.90 cents and 12.46 cents per lb, respectively.

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