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Weekly: ICE sugar futures post weekly loss on Brazilian export prospect, crude oil's slide

18 Jun 2022 9:18 am
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Mumbai, 18 Jun (Commoditiescontrol): ICE raw sugar futures snapped their winning streak this week, as slump in crude oil price is seen prompting Brazilian sugar mills to divert more cane crushing toward sugar production rather than ethanol thus boosting sugar supplies.

Further, the sugar market continues to digest proposed tax changes in Brazil aimed at curbing inflation, including fuel price inflation. The changes could lead mills to use more cane to make sugar rather than biofuel ethanol. However, the exact impact remains unclear.

ICE raw sugar futures are down 1.43 percent for the week, while London white sugar lost 0.51 percent.

The price fall would have been much sharper. Thanks to reports that suggested India may impose a ceiling on sugar exports next season and Brazil's oil company Petrobras raised gasoline prices, a move that could impact sugar production. These news helped sweetner to report modest gains on Friday.

ICE July raw sugar rose 0.02 cent, or 0.1 percent, at 18.60 cents per lb, after touching a week-high of 18.96 earlier. August London white sugar rose $2.60, or 0.5 percent, at $561.40 a tonne.

Sugar futures continued to sway to news flow on output prospect and crude oil price movement. Both are currently looking to push sugar prices lower. Oil prices headed for their first weekly decline since April amid choppy trading as investors assessed further inflation-fighting moves by central banks. Global sugar cane production forecast remains robust.

Bearish Factor

Sugar prices have been sliding with the prospect of more product coming onto world markets from Brazil, the biggest exporter. This week, Brazil’s government passed measures that will make gasoline more affordable. That could sink the price of competing ethanol. The move impacts sugar supplies because Brazilian mills will turn cane into either ethanol or sweetener, depending on profits. Falling ethanol prices are a signal mills will make more sweetener.

Tumbling oil prices on recession fears capped sugar gains. Brazilian state-run oil company Petrobras said on Friday it would increase gasoline and diesel prices beginning on Saturday, in a move that favors ethanol.

Ramped-up sugar output in India is bearish for sugar prices after the Indian Sugar Mills Association (ISMA) reported that India's 2021/22 sugar production during Oct 1-May 15 rose 14.4 percent on year to 34.88 MMT.

The outlook for larger sugar crop sizes in India and Thailand is bearish for sugar prices. On April 15, the ISMA raised India's 2021/22 sugar production estimate to 35 MMT from 33.3 MMT, up 12.2 percent on year, and said sugar exports would jump to a record 9 MMT. India is the world's second-largest sugar producer. Meanwhile, Thailand's Office of the Cane & Sugar Board estimated that Thailand would export 7 MMT of sugar this (2021/22) marketing year. Thailand is the world's second-largest sugar exporter.

A bearish factor for sugar was the projection from Conab on April 27 for Brazil 2022/23 sugar production to increase by 15 percent on year to 40.3 MMT as the crop recovers from the past season's adverse weather. Also, the USDA's FAS on April 22 projected Brazil's 2022/23 sugar production would climb 2.9 percent on year to 36.37 MMT and that 2022/23 Brazil sugar exports would increase by 3.7 percent on year to 26.6 MMT.

Bullish Factor

In a positive factor for sugar prices, Unica on May 25 reported that Brazil 2022/23 Center-South sugar production through May 15 fell 39.8 percent on year to 2.737 MMT.

India, a top sugar producer, is likely to impose a ceiling on sugar exports for a second straight year starting this October, aiming to ensure domestic supplies. Sugar found support Friday in a report from Reuters that said India might cap sugar exports at 6 MMT to 7 MMT starting in October.

However, much of sugar price movement will be closely linked to that of crude oils.

As per the Commodity Futures Trading Commission (CFTC), commitment of traders report, wpeculators have sharply reduced their net long position in futures of raw sugar on ICE U.S. in the week to June 14. Money managers and hedge funds cut 30,403 contracts to their long position in raw sugar to a net long of 42,819 lots.

Still, dealers said sugar should find support near 18.60 cents and resistance at 18.96 cents.

(By Commoditiescontrol Bureau: +91-22-40015505)

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