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Weekly : ICE Raw Sugar Zooms 10% Higher on Thailand Output Concern, Fund Buying; UpTrend to Continue

3 Aug 2020 9:20 am
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Mumbai (Commodities Control) – Sugar #11 sweetened its way through the week, ending 31st August, with 10% gains. The most active contract ended the week over 4.5 months high, primarily, driven by output concerns in Thailand and fund-buying.

NY Sugar settled 2% lower the prior week.

On Friday, NY world sugar prices rallied sharply on a technical breakout to a new 4-3/4 month high. Sugar prices also saw support from expectations for China and Indonesia to boost imports. Additional push came via a mild rally in September WTI crude oil prices, which was positive for Brazilian ethanol prices/production and negative for sugar production.

October raw sugar settled up 0.53 cents, or 4.4%, at 12.64 cents per lb, the highest since March 10. October white sugar settled up $13.40, or 3.6%, at $381.60 a tonne.

The week started with a big bang, as ICE raw sugar settled 5.5% higher at 12.12 cents on Monday. Sugar prices surged on 27th July due to strong sugar demand from Indonesia, after the nation reportedly issued Q4 import licenses for 600,000 MT of sugar. Sugar prices garnered support from strength in the Brazilian real, as well.

Czarnikow Group, last week, said it projects that Thailand's 2020/21 sugar production could drop more than 10% y/y to an 11-year low of 7.4 MMT, well below USDA estimates of 12.9 MMT, due to the worst drought in four decades.
Meanwhile China's sugar imports in June were sharply above the same month last year.

Also, Pakistan could import around 300,000 tonnes of sugar to tackle a shortage that has lifted local sugar prices.

Dealers said lower production in Thailand could partially offset a strong increase in output in Brazil.
"With less Thai raws becoming available early next year, the market looks substantially less crowded by the extra sugar from Brazil," Commonwealth Bank of Australia analyst Tobin Gorey said in a note.
ICE raw sugar wobbled due to profit booking on Tuesday, but managed to settle above 12 cents per lb on the back of Thailand’s output concerns and fresh demand news.
There was slight disappointment, during the week, when the Indonesian Sugar Refiners Association said the government issued 522,000 MT of sugar import licenses for Q4, below consensus of 600,000 MT. Indonesia is the world's third-largest sugar importer.
The European Commission reported Thursday that EU Oct-Jul sugar exports slumped 54% y/y to a 3-year low of 600,000 MT, indicating the reduced availability of supplies from the EU.
Managed money increased their net long position in raw sugar on ICE Futures U.S. in the week to July 28 by 9454 contracts to a net long of 88,983 contracts, data from the U.S. Commodity Futures Trading Commission (CFTC) showed on Friday. The open interest was registered at 1,127,746 contracts, up 28,298 contracts.

However, traders and analysts are wary of the production in the key Centre-South region of Brazil that is seen rising sharply in 2020/21 leading to a global surplus of the sweetener.

On 24th July, Unica reported 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.

Demand is beginning to make way. Consulting firm Datagro, although, said on July 15 that about 5 MMT of global sugar consumption would be lost between March 2020 and February 2021 due to the effects of the pandemic.

Meanwhile in India, sugarcane cultivation has reached about 51.78 Lakh ha as compared to 51.20 Lakh ha. during the corresponding period of last year.
Experts are of the opinion that longer term trends remain up for NY and London sugar. They believe that there is plenty of sugar for the world market, but getting the sugar moved is becoming more difficult with the widespread Coronavirus outbreak in both Brazil and India.

According to Jack Scoville of Price Futures Group trends in NY sugar are mixed-to-up with objectives of 13.10 cents for October futures.
Michael Seery of Seery Futures observes that the U.S dollar has continued its bearish trend during the week and that is a bullish factor towards the commodity markets. Seery sees the next major level of resistance stands at the 14 cents area as there is significant room to run.

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