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Weekly: ICE sugar snaps two straight weeks of gain; markets refocusing on fundamentals

20 Aug 2022 3:27 pm
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Mumbai, 20 Aug (Commoditiescontrol): ICE raw sugar futures snapped their back-to-back weeks of gain, as global sugar balance shifted back to ample availability of the sweetener on global output forecast and market refocusing on fundamentals. Sugar managed to gather support for smaller Brazilian sugar crop prospect, but that outlook could nat prevent the commodity from posting a weekly drop.

On Friday, ICE Sugar futures rebounded from a 2-week low and closed moderately higher on signs of a smaller Brazil sugar crop. Conab Friday cut its estimate for the 2022/23 Brazil sugar crop to 33.9 MMT from an April forecast of 40.3 MMT, citing lower plantings and falling sugar cane yields for the smaller output. The projection is smallest since 2011.

Sugar prices initially dropped to a 2-week low on weakness in the Brazilian real after the real fell to a 2-week low against the dollar. A weaker real encourages export selling by Brazil's sugar producers.

ICE October raw sugar ​settled up 0.32 cent, or 1.8%, at 18.09 cents per lb, after earlier having hit a two-week low of 17.61 cents/lb. October London white sugar rose $11.20, or 2.1%, at $550.10 a tonne.

Prices have lost ground this week, with a rally driven largely by fund short-covering running out of steam. Dealers said the market had begun to refocus on fundamentals. A global surplus is expected in both the 2021/22 and 2022/23 seasons.

A fresh projection from the Brazilian government, however, along with oversold technical signals, appeared to have turned the market around.

Bullish factor...

On Monday, sugar prices rose to 1-month highs on concern about a smaller global supply due in part to the heat wave in Europe, the world's third-largest sugar producer. Maxar Technologies recently said that hot and dry conditions in France and Germany threaten to lower sugar beet yields in the European Union and that India's sugarcane around the Ganges River Basin received below-normal rainfall in June and July.

An excessive short position by funds in NY sugar futures may provide fuel to any short-covering rally. Last Friday's weekly COT data showed funds boosted their short position in NY sugar futures by 169 in the week ending August 9 to 65,811 short positions, the most in 2 years.

Bearish factor...

In a bearish factor, Unica reported last Wednesday that Brazil's Center-South sugar output in the second half of July rose 8.4% on year to 3.302 MMT. However, Center-South crop output in the 2022/23 marketing year through the end of July was down 13.0% on year to 15.974 MMT.

Sugar prices have recently been undercut as India said it would allow additional sugar exports. India's government, on August 5, confirmed that it would allow a further 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 for a total of 11.2 MMT of sugar exports.

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 the USDA's FAS on April 22 for Brazil's 2022/23 sugar production to 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.

ICE raw sugar December contract would find support at 17.73 cents and meet resistance at 18.32 cents.

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

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