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Weekly: ICE raw sugar posts weekly gains on supply pressure; Strength in Brazilian Real, crude oil underpin support

10 Sep 2022 1:04 pm
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Mumbai, 10 Sep (Commoditiescontrol): ICE raw sugar futures were quick to return to positive weekly gains, following the last week's drop, as the sweetener generated support from supply pressure along with strength in Brazilian Real and crude oil prices coming to rescue.

On Friday, ICE raw sugar posted moderate gains, helped by Brazilian Real rising to a 1-week high against the dollar. The stronger real discourages export selling from Brazil's sugar producers. Also, the 3% rally in crude prices Friday supported sugar as strength in crude prices benefits ethanol and may prompt Brazil's sugar mills to produce more ethanol than sugar, thus curbing sugar supplies.

ICE October raw sugar gained 0.29 cents, or 1.62%, to 18.22 cents per lb. A moderate 0.39% gain for the week.

October London white sugar, which expires on Sept. 15, settled up $7.80, or 1.34%, at $588.00 a tonne, having hit a near two-month high on Monday. The contract added 2.47% on a weekly basis.


Bullish factor...

Sugar prices are currently witnessing a spell of support coming from weather, currency as well as on supply front. Apart from Brazilian Real and crude oil, sugar prices received support from the Thailand government decided to provide state subsidies for biofuels for two years. The subsidies may lower the amount of sugar Thailand has for export as the subsidies encourage Thailand's sugar producers to ramp up ethanol production rather than export the sugar.

Hot and dry weather in Europe, the world's third-largest sugar producer, may lead to smaller sugar beet yields and lower sugar production, which is bullish for prices. Forecaster Maxar Technologies said last Thursday that above-normal temperatures are expected across Europe this week, aggravating a prolonged drought that has hurt sugar beet yields.

Smaller sugar supplies from Brazil are supportive of prices. Unica on August 24 reported that Brazil's Center-South sugar crop output in the 2022/23 marketing year through mid-Aug was down 12.8% on year to 18.625 MMT. Also, Conab, on August 19, 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.


Bearish factor...

In a bearish factor, 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% 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.

Weakness in Brazilian ethanol prices is negative for sugar prices. Brazil's ethanol hydrous fuel prices tumbled to a 17-month low last Friday at 2.3134 reals/liter, which will encourage Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol, thus boosting sugar supplies.

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% year to 36.37 MMT and that 2022/23 Brazil sugar exports would increase by 3.7% year to 26.6 MMT.

Speculators increased their net short position in futures of raw sugar on ICE U.S. in the week to Sept. 6, data from the Commodity Futures Trading Commission (CFTC) showed on Friday.

Funds added 7,455 contracts to their bearish bet in raw sugar, taking their net short position in the sweetener to 30,173 lots.

Currently, the balance is slightly tilted in favour of bulls given the supply constraints and currency volatility ahead of key Federal Reserve meet. Till the clarity is attained on these two fronts, sugar prices looked set for upward march. Next week's London White sugar contract expiry and currency moves would keep traders on their toes.

Meanwhile, for Monday, October ICE raw sugar contract would find support at 18.01 cents and 17.81 cents, with resistance at 18.34 cents and 18.47 cents

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


       
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