Weekly: ICE sugar settles near 4-month low on long liquidation

Mumbai, 25 Jun (Commoditiescontrol): ICE sugar futures settled lower on Friday, extending their weeks of losses, on likely increased supplies from Brazil and concerns about a global economic slowdown, which prompted speculators to liquidate long positions, traders said.

Further, India's strong output prospect for the current marketing year added pressure, they said.

Weakness in the Brazilian real caused a decline of sugar prices after the real fell to a 4-1/2 month low against the dollar. The weaker real encourages export selling by Brazil's sugar producers.

ICE July raw sugar on Friday closed down 0.01 (0.05%) to 18.31 cents per lb, and Aug London white sugar settled $7.40 (1.34%) lower at $543.60 per tonne. Raw sugar dropped to a 3-3/4 month low and London sugar fell to a 1-1/4 month low.

Losses in sugar Friday were limited due to strength in crude oil prices. Crude oil prices rose more than 2% Friday, which benefits ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies.


Bearish Factors

The broader macro uneasiness is infecting sugar, analysts said. Hedge funds have been selling commodity futures due to macroeconomic weakness and recession concerns and better weather. The strong U.S. dollar and weak Brazilian real is a significant headwind for softs specifically, they added.

Speculators reduced their net long position in futures of raw sugar, data from the Commodity Futures Trading Commission (CFTC) showed on Friday. Money managers and hedge funds reduced their net long position in raw sugar by 2,141 contracts to 40,678 lots.

Dealers noted a delivery of around 200,000 to 400,000 tonnes was anticipated against the July contract, which expires on Thursday.

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% on year, and said sugar exports would jump to a record 9 MMT. India is the world's second-largest sugar producer.

The Indian Sugar Mills Association (ISMA) recently reported that India's 2021/22 sugar production from Oct 1-May 15 rose 14.4% on year to 34.88 MMT. 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% 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% on year to 36.37 MMT and that 2022/23 Brazil sugar exports would increase by 3.7% on year to 26.6 MMT.


Bullish Factors

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% on year to 2.737 MMT.

World sugar production in 2022/23 (Oct/Sep) is likely climb 2% on year to 174.400 MMT from 174.000 MMT in 2021/22 (ISO). Apparently, the world sugar surplus in 2022/23 will expand to 2.8 MMT from a surplus of 237,000 MT in 2021/22 (ISO).

Sugar production by Brazil, the world's largest sugar producer, in 2020/21 (Apr/Mar) will climb by 32% on year to 39.3 MMT from 29.8 MMT in 2019/20, as millers divert 46.4% of cane juice to produce sugar (up from 34.9% in 2019/20) (Conab).

Sugar production from India, the world's second-largest sugar producer, will climb 13% on year to 31 MMT in 2020/21 due to a good monsoon season (India Sugar Mills Association).

Weather concerns in Brazil are a major bullish factor for sugar prices, with Brazil having experienced its worst drought in 100 years, and as several bouts of frost in Brazil have damaged some sugar cane crops.

Meanwhile, media reports suggests that 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.

Not to forget, 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.

July sugar futures could find support at 18.18 cents and resistance at 18.40 cents.

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