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Weekly: ICE Raw Sugar Slips Over Outlook of Larger Global Output, Demand Concerns & Profit-Booking on Charts

14 Sep 2020 7:58 am
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Mumbai (Commodities Control) – NY sugar ended 1.24% lower for the week ended 11th September. The sweetener wobbled lower primarily due to demand concerns amid outlook of strong global sugar output.

Having said so, sugar prices on Friday managed to settle higher. NY sugar recovered from a 1-1/2 month low and closed slightly higher after a weak dollar sparked pre-weekend short-covering in sugar futures.

London sugar also moved higher on weakness in the British pound as GBP/USD dropped to a 7-week low Friday. Weakness in GBP/USD boosts sugar that is priced in sterling.

October raw sugar settled up 0.01 cent, or 0.1%, at 11.92 cents per lb, having hit its lowest since late July at 11.76 earlier in the session.October white sugar settled up $2.90, or 0.8%, at $357.20 a tonne.

During the truncated week, sugar prices were partly supported by rebound in energy prices. On Tuesday, Green Pool Commodity Specialists raised concerns about smaller sugar supplies from Thailand, whose sugar supplies are used for delivery against the London white sugar futures contract; prompting traders to cover short positions in the front month October London sugar futures contract that expires on Sep 15.

However, by mid-week, demand concerns returned. Weak ethanol demand worries in Brazil may prompt Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol production, thus boosting sugar supplies.

The CEO of Cosan said the Covid pandemic had reduced Brazil's aviation fuel demand by 80% amid travel restrictions. Gasoline and ethanol demand are still down 10% from last year. On Wednesday, October raw sugar settled flat at 12.03 cents per lb.

However on Thursday, ICE raw sugar slipped to settle under 12 cents mark; just above the recent 6-weeks low, as Unica showed that Brazil's Center-South sugar production in the second half of August jumped 16% y/y to 2.933 MMT, with the percentage of cane used for sugar climbing to 46.8% in 2020/21 from 36.5% in 2019/20.

Also, demand for Brazil's ethanol has plunged. This will likely lead to an increase in sugar supplies after total Brazil ethanol sales in the first half of Aug tumbled 18% y/y to 1.2 billion liters.

October raw sugar settled down 0.12 cent, or 1.0%, at 11.91 cents per lb.October white sugar settled down $3.70, or 1.0%, at $354.30 a tonne.

Dealers said Brazilian sugar production for the season looks to be heading to over 37 million tonnes. Production in the season to date is currently 43.8% higher than last season.

"We can still hear foreboding theme music: momentum investors remain long a market that has clearly stopped rallying," Commonwealth Bank of Australia said in a note.

Amidst all the bearish factors, sugar prices also found support on concern a La Nina weather pattern could lead to excessive dryness in Brazil that cuts sugarcane yields. The U.S. Climate Prediction Center on Thursday said a La Nina weather pattern has emerged in the Pacific Ocean, which could lead to below-average precipitation in Brazil in Q4, according to Maxar.

It is to be noted that NY sugar initially posted a 1-1/2 month low Friday on the outlook for a bumper sugar crop from India. India's Meteorological Department on Friday said India's monsoon rain so far this year is 7% above normal as of Sep 6. Also, Czarnikow Group estimates that India 2020/21 sugar production will climb 20% y/y to 32.5 MMT.

Having said so, the International Sugar Organization (ISO) recently boosted its global 2020/21 sugar production estimate and increased its global 2020/21 sugar deficit estimate. The ISO projects that global 2020/21 sugar production will increase by 2.3% y/y to 173.5 MMT. The ISO also said the global 2020/21 sugar deficit would widen to 72,000 MT from 14,000 MT in 2019/20.

Meanwhile, speculators reduced their net long position in raw sugar on ICE U.S. in the week to Sept. 8 by 23,609 contracts for a total net long of 166,472 contracts. Open interest was registered at 12,19,343, down 27,566 contracts.

Indian Sugar/Cane Updates - About 52.46 lakh ha area coverage under sugarcane has been reported compared to last year (51.75 lakh ha). Thus 0.71 lakh ha more area has been covered compared to last year. Higher area is reported from the States of Maharashtra (1.56 lakh ha), Karnataka (0.16 lakh ha), Uttar Pradesh (0.11 lakh ha), Chhattisgarh (0.01 lakh ha) and Punjab (0.01 lakh ha).

During the week, however, it was reported that ‘White grub’ -- an agriculture pest, after wreaking havoc in the Vidarbha and Marathwada regions of Maharashtra has also affected about 3,000 acres of sugarcane crop in the Pune district. White grub insect larvae has resurfaced in the Pune district.

The pests eat at the roots of sugarcane, decreasing the moisture and nutrient supply to the plant. This leads to the yellowing and wilting of leaves and causes extensive damage to the base of the shoot, leading to the dislodgement of the cane in the field.

Meanwhile, India recorded an increase of Rs 4,818 crore of agri export for April-June 2020 compared to 2019 Q1. Export of refined sugar contributed an increase of Rs 1,719 crore and export of raw sugar Rs 448 crore during the period.

Support and resistance for Sugar #11 March 2021 contract lies at 12.35 cents and 12.77 cents per lb, respectively.

(Commodities Control Bureau)

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