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Weekly: ICE Raw Sugar Slips on Expectations of Higher Brazil Sugar Production, Spec Buying Limits Loss; Analysts Eye 12.90 Cents Resistance Level

30 Aug 2020 4:27 pm
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Mumbai (Commodities Control) - For the second straight week, NY sugar ended 1.8% lower, during the week 24th-28th August, primarily due to global oversupply concerns amid reports of higher Brazilian output. Sugar #11 ends 2% lower after a volatile trading week, ended 21st August.

Having said so, ICE raw sugar for October futures has risen nearly 5% higher in a month’s time.

Fundamentals on the supply side may have thrown sugar #11 off-balance, but the sugar market continues to be well-supported through fund buying. Friday's Commitment of Traders (COT) data showed that managed money boosted their net-long in NY sugar positions by 17,230 contracts for the week ended Aug 25 to 188,193 contracts.

Although sugar prices on Friday closed lower, but remained above the 2-week lows made earlier this week.

October raw sugar settled down 0.17 cent, or 1.3%, at 12.60 cents per lb.October white sugar settled down $2.30, or 0.6%, at $359.70 a tonne.

Dealers said short-term supplies remained plentiful due to strong production in Brazil, and October's discount to March could widen even further from the current level of around 0.63 cents in the run-up to the contract's expiration at the end of September.

This week, Unica showed that Brazil's Center-South sugar production in the first half of August surged 51% y/y to 3.217 MMT, with the percentage of cane used for sugar climbing to 47.66% in 2020/21 from 35.88% in 2019/20.

Also, demand for Brazil's ethanol has plunged, which may prompt Brazil's sugar mills to divert more cane crushing to sugar production instead of ethanol production and increase sugar supplies after total Brazil ethanol sales the first half of Aug tumbled 18% y/y to 1.2 billion liters.

A week back, Conab boosted its forecast for Brazil's 2020-21 (Apr/Mar) sugar output by 11% to 39.3 million metric tons from May's estimate of 35.3 million MT and 2019-20 production of 29.8 million MT.

Conab raised its forecast for Brazil's Center-South 2020-21 sugar output to 35.7 million MT from May's 31.8 million MT. Brazil's sugar mills are expected to divert 46.4% of sugarcane to refined production, up from 34.9% in 2019-20 due to weak ethanol prices and demand.

During the week, sugar #11 was largely subdued, barring on Thursday when the most-active ICE futures ended 19 points higher to settle at 12.77 cents per lb. Raw sugar futures closed up on ICE, as Hurricane Laura caused some problems to cane fields in the U.S. state of Louisiana; additionally supported by strength in the Brazilian real, which rallied 0.77% against the dollar on Thursday.

Global markets, however, remain well supplied as Brazilian mills continue to increase production by around 50% this year.

Having said so, dealers noted earlier this week that the market suffered a short-term setback after its run-up to a five-month high earlier this month but background fundamentals were becoming more supportive.

"A (downward) correction may be overdue, but the medium-term fundamentals show much more risk on the upside," analyst Robin Shaw of Marex Spectron said in a note.

Dealers are keeping a close watch on the possible development of La Nina weather pattern that could last through the 2020/21 winter.

Analysts Green Pool said La Nina could lead to dry weather in the second half of the year in southern Brazil, Argentina, the far south of India and the northern growing areas of Mexico.

The weather phenomenon could also lead to wetter than normal conditions in NNE Brazil, Australia, Indonesia and the Philippines as well as an increased risk of frost in China.

Meanwhile, Thai sugar exports fell 24% on the month in July amid supply tightness forcing destination buyers to seek alternative origin cargoes that are more competitively priced, trade sources said Aug. 25.

Total sugar exports from Thailand in July was at 428,174 mt - comprising 204,761 mt of raw sugar, 26,908 mt of white sugar and 196,505 mt - compared to 559,938 mt for June shipments, data from Thai Sugar Millers Corporation (TSMC) showed.

Raw sugar export volumes between January to July were down almost 20%, year on year, at 2.7 million mt, compared to 3.36 million mt last year.

Trade sources noted that Thai export sales into Indonesia would likely dampen further in the third and fourth quarter.

On the Indian side, meanwhile, ex-mill prices of sugar were down in key wholesale markets across North India on Friday, ahead of the sales quota for mills for September, due to be released on Monday.

Traders and wholesalers expect the sales quota for next month to be higher at 2.1-2.2 mln tn. For August, the government had fixed the sales quota at 2.05 mln tn.

Technical analysts, meanwhile, see an uptrend on the chart, as soon as the market rises above resistance level 12.90 cents, which will be followed by moving up to resistance level 13.80 cents.

However, the downtrend may be expected to continue, while the market is trading below resistance level 12.90, which will be followed by reaching support level 12.20 cents.

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