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Weekly: ICE raw sugar melts to dim economic outlook; Losses may extend into next week

24 Sep 2022 1:01 pm
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Mumbai, 24 Sep (Commoditiescontrol): ICE raw sugar futures melted to increased selling pressure, which was triggered by increased concerns about global economic downturn against the backdrop of rising interest rates.

On Friday, the situation worsened for Sweetener and prices were under pressure the entire day due to the plunge in crude oil prices as well. It is expected that prices may continue to trend lower in the immediate term as sluggish global outlook amid improved crop forecast, particularly in Brazil. The recessionary pressure is slowly and surely building across financial markets and is likely to get accentuated due to the coordinated approach of the global central banks to tame inflation and tighten liquidity conditions.

On Friday, ICE October raw sugar settled down 0.21 cent, or 1.1%, at 18.28 cents per lb. The contract hit a seven-week low of 17.50 cents on Monday. December London white sugar lost $4.20, or 0.8%, to $532.70 a tonne.

WTI crude sank more than 5% Friday to 8-month low, which undercuts ethanol prices and may prompt Brazil's sugar mills to divert more sugarcane crushing toward sugar production rather than ethanol, thus boosting sugar supplies.

"As the outlook for the global economy continues to weaken and expectations of tighter monetary policy continue to increase the outlook for sugar prices remains bleak, with more sugar diverted towards sweetener, rather than ethanol production," Fitch Solutions said in a note.

Bullish factors...

The current scenarios present fewer bullish factors. On top of the list is global weather condition. 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.

The rains, despite impacting near-term production, might help extend the crop and also improve the outlook for next year, which reinforced the inverted market situation where deferred contracts are trading at a discount to the spot position.

Last Tuesday, ICE raw sugar posted a 5-week high after Unica reported that Brazil's Center-South sugar crop output in the 2022/23 marketing year through Aug was down 10.5% on year to 21.77 MMT.

Bearish factors...

A bearish factor for sugar was Monday's projection from StoneX for Brazil Center-South 2023/24 sugar production to climb 5.7% on year to 35.2 MMT. StoneX also projects that global 2023/24 sugar production would climb 3% on year to 194.4 MMT on rising supplies from Brazil, India, and Thailand. StoneX predicts a 2022/23 global sugar surplus of 3.9 MMT.

Another bearish factor being, India's government, on August 5, confirming 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.

On Friday, the Commodity Futures Trading Commission (CFTC) data showed that the Speculators increased their net short position in futures of raw sugar on ICE U.S. in the week to September 20. Funds added 21,984 contracts to their bearish bet in raw sugar, taking their net short position in the sweetener to 39,516 lots.

The CFTC report confirms bearish undertone in the commodity, which may reflect in prices getting knocked down further.

For Monday, support for October raw sugar is at 17.40 cents and 17.16 cents, with resistance at 17.93 cents and 18.22 cents.

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

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