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Weekly: ICE sugar falls to 2-week low on recession fears; Near-term momentum is on downside

23 Jul 2022 12:40 pm
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Mumbai, 23 Jul (Commoditiescontrol): After positing two straight weeks of gain, ICE sugar futures resumed their downward spiral this week as decline in wider commodity complex amid recession fears and stock market losses prompted liquidation proces in the sweetner. Further, weakness of Brazilian real and slide in crude oil prices resulted in addition of bearish factor for sugar.

On Friday, ICE October raw sugar ​​settled 0.46 cents, or 2.5%, lower at 17.89 cents per lb. It lost 7% in the week. October London white sugar fell $9.20, or 1.7%, at $523.40 a tonne. ICE Sugar futures declined to a 2-week low while London sugar slipped to a 3-1/2 week low.

Dealers said the market was weakened partly by chart-based selling with technicals looking bearish after the sharp decline in prices this week.

Sugar prices were under pressure from weakness in the Brazilian real and crude oil prices. The Brazilian real Friday closed lower and is just above Thursday's 5-3/4 month low against the dollar. A weaker real encourages export selling from Brazil's sugar producers, they added.

Bearish factors...

There are host of bearish factors presently flashing on the sugar complex. These factors are both fundamentally as well as technically driven, and are warranting caution while trading.

Top of the list are production forecast from Brazil amid sliding crude oil prices.

Crude prices fell more than 1.5% Friday, which undercuts ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing to sugar production rather than ethanol, thus boosting sugar supplies.

Sugar prices were already on the defensive on signs that India may allow additional sugar exports weighed on sugar prices. A report from Bloomberg Wednesday said that India's government is considering allowing additional export sales of 1.0-1.2 MMT of sugar exports for the year ending September 30 to help India's sugar mills from defaulting on export contracts. That's on top of the current quota of 10 MMT of sugar exports.

Reduced sugar output in Brazil is bullish for prices. Unica reported last Tuesday that Brazil 2022/23 Center-South sugar production through June was 9.68 MMT, down 21.6% on year, with the sucrose content per ton of crushed sugar cane down 4.4% on year to 127.25 kg per tone.

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...

These are few in numbers are once again reflecting dependence on Brazilian sugar output and the speculative trade entered into by the large and commercial markets on the ICE.

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.

Speculative specs from the U.S. are seemingly optimistic at this point in time. Speculators switched from net short to a net long position in futures of raw sugar on ICE U.S. in the week to July 19, data from the Commodity Futures Trading Commission (CFTC) showed on Friday.

Money managers and hedge funds added 26,047 contracts in raw sugar, building a net long position of 24,987 lots.

Well! concluding the above factors, the markets are clearly leaning in favour of bearish bet. Even the technical analysts are calling for a downside in the near-terms. Hence, it is advised to take cautioun while entering into sugar trade, more precisely on long side of the market, so as to award getting hit by likely fall in sugar prices.

On technical basis, Sugar Oct'22 futures are likely to find support at 17.70 cents while it would meet resistance at 18.26 cents.

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

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