Mumbai, 16 Jul (Commoditiescontrol): ICE sugar futures eked out moderate gains on Friday, as well as for the week, helped by the dollars weakness amid prospects of tight Brazilian supplies following its decision to reinstate a tax advantage to biofuels. Traders resorting to bargain buying lent a helping had to sweeteners price recovery this week.
Although, the latest report from Stonex provided little inclination to price gains, the agency pegs world sugar supply balance at 3.3 million tones surplus for 2022/23, projection for the 2.1% drop in Brazil sugar recovery seems to have played out positively.
ICE October sugar contract closed up 0.28 (1.48%) at 19.25 cents, and Oct London white sugar ended 8.50 (1.54%) higher at $559.60 a tonne.
Sugar prices Friday rallied moderately and posted 5-week highs. Weakness in the dollar sparked short-covering in sugar futures. Also, a rally of more than 2% in crude oil prices benefited ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing towards ethanol and less towards sugar, thus curbing sugar supplies.
Dealers said near-term tightness in white sugar, linked in part to India's export constraints, is limiting losses in raw sugar.
Bullish Factors
New legislation approved by the Brazilian Congress reinstated a tax advantage to biofuels compared with fossil fuels -- a move that should benefit ethanol and sugar longer term. The new legislation comes in the wake of tighter output forecast.
Brazilian mills are expected to produce only 200,000 tonnes more sugar in the 2022/23 season (April-March) despite a better sugarcane crop, as a larger part of the cane will be used to make ethanol, investment bank Itau BBA said on Friday.
The bank's agricultural research arm projected Brazil's centre-south sugar production at 32.2 million tonnes in 2022/23 versus 32 million tonnes in the previous season. The sugarcane crop was seen at 555 million tonnes, up from 523 million tonnes in the last season which was hurt by drought and frosts.
Deliveries of refined sugar against the expiry of the August contract at ICE London exchange were seen at 4,528 lots, or 226,400 tonnes, according to preliminary information from sugar traders on Friday.
Asian commodities trader Wilmar International was said to be the main deliverer of that sugar with 3,219 lots, or 160,950 tonnes, while British trader ED&F Man was seen as the main receiver with 2,930 lots, or 146,500 tonnes, the traders said.
They said a report from industry group UNICA issued on Tuesday showed the cane crush in Centre-South Brazil was lower than expected in the second half of June, although the impact on sugar prices was offset by mills using a higher-than-anticipated proportion of cane to produce the sweetener rather than biofuel ethanol.
Bearish Factors
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.
A supportive factor for sugar is reduced sugar production in Brazil. Unica last Tuesday reported that Brazil 2022/23 Center-South sugar production through Jun 15 fell 23.6% on year to 7.193 MMT.
Sugar Oct'22 futures are likely to find support at 18.99 cents and resistance at 19.44 cents.
Macro-economic factors, weather conditions will be at play. After sharp decline in prices over the last couple of weeks, sugar may witness a buying interest ahead of ensuing festival season and as the current marketing year nears its end.
(By Commoditiescontrol Bureau: +91-22-40015505)
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