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Weekly : ICE Raw Sugar Weakens on Expectation of Record Brazilian Sugar Output, Demand Concerns; Mixed Price Trend Ahead

26 Jul 2020 10:51 pm
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Mumbai (Commodities Control) – Sugar #11 settled 2% lower for the week ended 24th July, after a choppy trading period. Most-active October contract on ICE futures slipped 24 points by the end of the week primarily due to rise in Brazilian sugar output and ethanol demand concerns.

A week prior, NY Sugar settled flat-to-negative.

Raw sugar futures closed down more than 2% on Friday as Brazilian production jumped 55% in July, keeping the world's largest producer on track for a record season.NY sugar slipped to 1-week low on weak ethanol demand, as well.

October raw sugar settled down 0.28 cent, or 2.4%, at 11.49 cents per lb.October white sugar settled down $6.70, or 1.9%, at $350.30 a tonne.

During 20-24 July, market remained in the shadow of record Brazilian production and demand concerns. Sugar market could not incorporate strength from firm crude oil (touched 4.5 Months high on Tuesday) and even strength in Brazilian Real that touched multi-week highs on Tuesday and Wednesday.

Unica reported Friday that Brazil's Center-South sugar production in the first half of July rose 55.6% y/y to 3.022 MMT, with the percentage of cane used for sugar climbing to 47.94% in 2020/21 from 35.99% in 2019/20.

Also, ethanol demand is weak after Unica also reported that total ethanol sales by Brazil Center-South mills in the first half of July fell 19% y/y to 741.4 mln liters, which indicates pressure for less ethanol production and more sugar production.

A trend toward increasing the use of cane in Center-South Brazil to make sugar rather than ethanol continued to ensure the market was well supplied. Demand for biofuel ethanol in Brazil has been weakened by the COVID-19 pandemic.

"The consensus interpretation, we think, is that Centre-South Brazil is heading like a sleep-walker towards maximum sugar, it is now effectively too late to change the sugar mix significantly; so we are going to end this year with a substantial surplus," broker Marex Spectron said in a report.

Around Mid-July, Consulting firm Datagro 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 projected several weeks back that with the closure of restaurants, sports arenas, and cinemas all over the world due to Covid lockdowns, global sugar demand will fall this year for the first time in four decades.

Another negative for sugar was Thursday's action by Rabobank to cut its global 2019/20 sugar demand estimate to a 1.3% y/y decline from a June forecast of 1.0% y/y, citing shrinking demand from companies that make soda and chocolate.

Dealers said there was little to push sugar out of its recent 11.50-12.00 cent range amid a lack of fresh fundamental news and as prices have even detached somewhat from wider financial markets.

Archer Consultancy said on Thursday Brazilian sugar mills are advancing hedging for next year's crop, having hedged 4.2 million tonnes for the 2021-22 season already.

Meanwhile on technical charts, net longs for the week ended 21st July upped by 1011 contracts, as compared with last week, at 79,529 contracts. This slight rise in net longs was due to a rise of 2027 contracts on the long side to 142,958 contracts. Having said so, shorts are constantly added week on week. 1016 contracts were added to the short side for the week ended 21st July. The open interest for Sugar #11 upped 401 contracts at 1,099,448 contracts.

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

Other Sugar-Related News This Week
In Maharashtra, area under kharif, including sugarcane, is 151.34 lh, of which sowing has been completed on 125.17 lh (83%). Last year, sowing under this category was 67%.

Meanwhile, India’s 2020-21 kharif crop sowing as on July 24 up at 799.95 lakh hectare as against 675.07 lakh hectare during the same period last year.

Last month, The Indian Sugar Mills Association (ISMA) said that India's 2020/21 sugar production would climb 17.7% y/y to 32.01 MMT as sugar acreage increased by 8.1% to 5.23 mln hectares. ISMA also projects that India's 2020/21 sugar exports will jump to 7 MMT, up +25.7% from 5.2 MMT in 2019/20.

China imported about 410,000 tonnes of sugar in June, an increase of 110,000 tonnes or 36.67% from 300,000 tonnes in May and an increase of 270,000 tonnes or 192.86% YoY. January-June imports totaled about 1.23 mln tonnes, a year-on-year increase of 160,000 tonnes or 14.95% from 1.07 mln tonnes. According to China's General Administration of Customs, China’s June sugar imports hit the single-month high in nearly ten years, surpassing the monthly record of 378,000 tonnes in 2012.

Going forward experts will keenly be watching the ‘plentiness’ of Sugar in the world market. Having said so, getting the sugar moved may be more difficult with the widespread Coronavirus outbreak in both Brazil and India. Brazil mills have shifted part of the crush to Sugar production due to less ethanol demand and ports are said to be operating normally.

Jack Scoville of The Price Futures Group sees a mixed trend in NY sugar prices. Support for the active October contract is seen at 11.50-11.30 cents and resistance at 12.00-12.30 cents per lb.

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