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Weekly: ICE Raw Sugar Rally Loses Steam to Robust Supplies, Demand Concerns; Range-Bound Price Trend Ahead

13 Jul 2020 7:30 am
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Mumbai (Commodities Control) – Sugar#11 ends nearly 4% lower for the week ended 10th July. Most-active October contracts on ICE gave up 48 points in the 5-day duration, primarily pressurized by concerns of ample global supplies and weak demand outlook. There was little support from Crude oil and Brazilian currency this week.

ICE raw sugar prices, on Friday, moved lower for a third day to touch 1-1/2 week low and London sugar at a 6-week low on ample supplies and suspect demand.

October raw sugar settled down 0.08 cents, or 0.7%, at 11.76 cents per lb. August white sugar settled down $4.70, or 1.4%, at $335.40 a tonne.

Losses in sugar were limited Friday on a 2% rally in crude prices. Higher crude oil prices are positive for ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing to ethanol production rather than sugar production, thus curbing sugar supplies.

Meanwhile on technical charts, a sharp rise in managed money net longs was witnessed at 80, 242 contracts for the week ended 7th July, up 38% from the prior week. According to CFTC report, 13,247 contracts were added to the long side of managed money, while 8646 contracts were given up on the short side.

The open interest for Sugar #11 upped 8552 contracts at 1,085,330 contracts.

Bearish Cues

Looking at the fundamentals, sugar futures closed down despite rising oil prices, a rare detachment between the two asset classes as higher energy prices are usually seen as cutting sugar production in top producer Brazil in favor of ethanol making.

Sugar supplies are abundant after Unica on Thursday reported that Brazil's Center-South sugar production in the second half of June rose 23.3% y/y to 2.728 MMT, with the percentage of cane used for sugar climbing to 47.42% in 2020/21 from 37.06% in 2019/20.

Brazilian mills cumulative sugar output this season is 48.75% above last season.

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

"A (Brazil) production change (i.e. sugar mix decrease) is unlikely as sugar prices still beat ethanol," said trader Czarnikow.

Suedzucker - Europe's largest sugar refiner, on Thursday, said the positive impact of panic-buying at the outset of the coronavirus pandemic had faded and was increasingly overshadowed by lower demand from the sugar processing industry amid efforts to contain the virus's spread.

Europe's largest sugar refiner nonetheless stuck with a forecast for group operating profit in its 2020/2021 financial year starting in March to rise to between 300 and 400 million euros ($324.3 to $432.4 million) from 116 million euros in the previous year.

U.S. sugar stocks-to-use ratio increased for both old and new crop years on Friday, due to higher imports and production, while expected consumption was unchanged, according to data from the U.S. Department of Agriculture.

Bullish Cues

On the positive side, Unica also reported that total exports of ethanol by Brazil Center-South mills in June rose 44% y/y to 267 mln liters, which indicates pressure for less sugar production and more ethanol production.

Dealers said sugar was underpinned by concerns over dry weather in Brazil.

However they add, there was no fundamental reason for raws to rally as the weather remains favourable in India and the European Union, and as the whites refining margin continues to slide.

On the Indian side, Mills have contracted to export 5.2 million tonnes of sugar since the current season began on October 1 2019

Indian Mills have already shipped out 4.5 million tonnes of the sweetener, said All India Sugar Trade Association. Sugar mills have sold about 2.4 million tonnes of raw sugar and around 2 million tons of refined, or white, sugar to 73 countries. With the brisk pace of overseas sales, mills are likely to export about 6 million tonnes of sugar in the current 2019-20 season.

According to latest GoI data, sugarcane was sown in around 5.1 million hectare area.

Experts see mixed trends in NY sugar going forward; medium term support and resistance lies at 11.70 cents and 12.30 cents per lb respectively.

(Commodities Control Bureau)

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