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Weekly : ICE Raw Sugar Loses Sweetness to Liquidation Pressure, Demand Concerns; Range Bound Move Expected

19 Jul 2020 8:03 pm
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Mumbai (Commodities Control) - NY Sugar settled flat-to-negative for the week ended 17th July. Most-active October contract on ICE futures slipped 3 points by the end of the week primarily tracking crude oil price movements and demand concerns.
Sugar#11 ended 4% lower between 6th and 10th July.

Sugar prices on Friday settled mixed with London sugar at a 1-week high. London sugar gained on concerns that the surging Covid pandemic in India may disrupt its harvest and sugar exports. However, NY sugar ended lower on weakness in Real.

Covid infections in India, the world's second-largest sugar producer, have risen above 1 million, the third-most in the world behind the U.S. and Brazil.

NY sugar gave up its gains Friday and turned lower on weakness in the Brazilian real that fell 0.84% against the dollar.

October raw sugar settled down 0.06 cents, or 0.5%, at 11.73 cents per lb.October white sugar settled up $3.90, or 1.1%, at $352.40 a tonne.

Meanwhile on technical charts, net longs for the week ended 14th July dipped by 2276 contracts, as compared with last week, at 78,518 contracts. This decline in net longs was due to the rise of 4455 contracts on the short side to 62,413 contracts. According to the CFTC report, the pace of new longs has come down considerably vs last week. For the week ended 14th July 2731 contracts were added to the long side vs addition of 13,247 contracts last week. The open interest for Sugar #11 upped 13,717 contracts at 1,099,047 contracts.

A bearish factor for NY sugar prices is a large long position by funds fuelling long liquidation pressure.

Fundamentally speaking, weak demand is an area of concern for sugar prices. Through the week, ICE sugar was pressurised by weakness in crude oil and global equities, ease in supply tightness of London Sugar and declining demand concerns.

Barring a short covering on Wednesday, when ICE October futures settled at 11.82 cents per lb, sugar was generally dull through the week. The October contract touched a low of 11.27 cents per lb in Tuesday’s session; 6 weeks low.

Bearish Cues

Consulting firm Datagro this week said that about 5 MMT of global sugar consumption would be lost between March 2020 and February 2021 due to the effects of the pandemic.

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.

Robust Brazilian ethanol inventories are negative for ethanol and sugar prices, as the surge in inventories may force Brazil's sugar mills to reduce ethanol output and increase sugar production. StoneX on Thursday said that Brazil's Center-South ethanol inventories jumped 47.5% y/y to 5.9 bln liters as domestic and foreign ethanol demand has trailed Brazil's ethanol output.

Sugar supplies are ample after Unica reported last Thursday 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.

On the bullish side for sugar, however, 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.

A total of 432,500 tonnes of mostly Indian white sugar has been tendered against the August contract on ICE Futures Europe, exchange data showed on Friday.

Meanwhile in India,GoM headed by the country's Home Minister recommended increasing the minimum selling price (MSP) of sugar by Rs 2 to 33 per kg to ensure mills clear the pending cane arrears of around Rs 20,000 crore at the earliest.

Analysts are now watching, active export program from Brazil. They are not hopeful about India or Thailand at the moment because getting the Sugar moved is becoming more difficult with the widespread Coronavirus outbreak in both Brazil and India.

They add that Coronavirus has also hurt demand ideas, especially for ethanol. Brazil mills have shifted part of the crush to Sugar production due to less ethanol demand. 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 due to Coronavirus lock downs. Thailand may have less this year due to reduced planted area and erratic rains during the monsoon season.

According to the dealers, the market appeared range bound at the moment, with support around 11.30 cents and resistance at 12.30 cents.

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