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Weekly: ICE sugar lost 7% in July as Brazil lowers gasoline prices; Spec switching position to net short spells negative

30 Jul 2022 12:43 pm
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Mumbai, 30 Jul (Commoditiescontrol): ICE sugar futures continued to witness massiving selling this week, tracking broader decline in risky assets ahead of Federal Reserve rate setting meeting. Although, the outcome matched market expectations, but sweetners prices continued to slide led by crude oil prices and the dollar movement against basket of currencies.

On Friday, ICE Sugar closed lower with similar losses of around 7% for the month which was also marked by strong liquidation from financial investors triggered by weak fundamental outlook.

ICE October raw sugar fell 0.18 cent, or 1.0%, at 17.54 cents per lb. The contract lost 6.9% in the month. October London white sugar fell $4.40, or 0.8%, at $527.20 a tonne. The contract lost 5.28% in July.

Dealers pointed out the drop in gasoline prices in Brazil could have a mildly bearish impact, potentially reducing demand for cane-derived biofuel ethanol and prompting mills to use more cane to make sugar.

Brazilian state-run oil company Petrobras cut gasoline prices at its refineries to 3.71 reais ($0.7110) per litre from 3.86 reais, a 4% cut that will take prices to their lowest since March.

Bearish factors...

Prices of the sweetner have been on the defensive over the past week on signs that India may allow additional sugar exports. A report from Bloomberg last 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 would be on top of the current quota of 10 MMT of sugar exports.

Meanwhile, on Thursday, Reuters report claimed that India is set to allow mills to export another 1 million tonnes or so of sugar this season, mostly unrefined.

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.

India's sugarcane plantation during the current Kharif season seen up 0.09% to 54.51 Lakh Hactares as per the Ministry of Agriculture and Farmer Welfare.

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.

Global sugar surplus is pegged at 2.81 million tonnes for the 2022/23 season, versus a surplus of just 220,000 tonnes in 2021/22. In February, analysts survey had put the looming global surplus at just 750,000 tonnes in the 2022/23 season versus a deficit of 1.25 million tonnes for 2021/22.

Speculators switched from net long to a net short position in futures of raw sugar on ICE U.S. in the week to July 26, data from the Commodity Futures Trading Commission (CFTC) showed on Friday. Money managers and hedge funds sold 68,538 contracts in raw sugar, building a net short position of 43,551 lots.

Bullish factors...

Earlier in the week, the sugar prices were pushed higher on positive carry-over from Wednesday when Unica reported that Brazil 2022/23 Center-South sugar production through mid-July was 12.661 MMT, down 17.4% on year, with the sucrose content per tonne of crushed sugar cane down 3.3% on year at 130.45 kg per tonne.

This was second straight week of sugar production loss for 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.

Raw sugar is forecast to end this year above current levels at 18.50, but still represent a 2% annual loss as a looming 2022/23 surplus widens versus the prior season, analysts said. Rising inflation is keeping production costs high, underpinning sugar even as the market surplus is set to widen, they added.

Sugar Oct'22 futures are likely to find support at 17.41 cents and resistance at 17.78 cents.

Given the sluggish fundamentals and CFTC COT data, traders are expected to continue with the liquidation process in coming week as well, which may add further pressure on prices.

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

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