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Weekly: ICE raw sugar melts to selling pressure; white sugar falls from 10-year high

17 Sep 2022 2:02 pm
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Mumbai, 17 Sep (Commoditiescontrol): It was a tug-of-war between ICE raw sugar and London white sugar, as both succumbed to liquidation pressure, particularly the London white sugar due to contract expiry, in just concluded week.

On Friday, ICE sugar futures settled lower, while London white sugar retreated from a 10-year high against the backdrop of tight supply, with the market in need of exports from India, a leading producer and exporter of whites.

ICE Cotton October raw sugar ​​fell 0.3 cents, or 1.7%, at 17.88 cents per lb. That's down 1.86% for the week, erasing entire gains of the last week and slipping below the crucial support level.

December London white sugar settled down $15.20, or 2.8%, at $527.80 a tonne, having touched a 10-year high of $541. Deliveries of refined white sugar against the expiry of the ICE October contract on Thursday were seen at about 4,480 lots, or about 224,000 tonnes, according to preliminary information from sugar traders.

Dealers said that October white sugar expired at a huge $79.80 premium to December and this, plus the relatively small delivery, indicated tight near-term supplies.

Bullish factors...

White sugar stocks have been depleted in some major importing countries while Indian exports remain low, with dealers concerned that domestic prices in India are above global market prices.

India is poised to allow 5 million tonnes of sugar exports in the first tranche for the new marketing year beginning in October and could allow another 3-5 million tonnes later in the year.

Sugar prices saw support when the Thailand government last Friday announced that it would provide state subsidies for biofuels for two years. The subsidies may reduce 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.

This summer's hot and dry weather in Europe, the world's third-largest sugar producer, caused smaller sugar beet yields and lower sugar production, which is bullish for sugar prices. Czarnikow Group predicts sugar output in the European Union (EU) and the UK should total 16.4 MMT this year, about 1 MMT lower than last year, which means the EU may have to import more sugar than usual.

Another supportive factor for sugar was the action by Conab on August 19 to 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.

A minor support are provided by the CFTC Commitment of Traders (CoT) report. Speculators added their net long position in futures of raw sugar on ICE U.S. in the week to September 13. Funds added 344 contracts to their bullish bet in raw sugar, taking their net long position in the sweetener to 30,540 lots.

Bearish factors...

Weak Brazilian ethanol prices are negative for sugar. Brazil's ethanol hydrous fuel prices fell to a 1-1/2 year low last Friday of 2.2275 reals/liter, which encourages Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol, thus boosting sugar supplies.

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% 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.

Sugar prices quoting below $18 will discourage Indian supplies from entering global markets, which would mean tighter availability in the near term. On the other hand, Brazilian suppliers would look seize the opportunity. Lower realisation from ethanol would prompt diversion of cane for sugar making. Interestingly, the pull and drag could cause the pendulum to swing either ways. For now, $18 mark holds key for sweetener before making swift move.

For Monday, support for October sugar is at 17.42 cents and 17.29 cents, with resistance at 17.80 cents and 18.05 cents.

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

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