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Weekly: ICE sugar posts second straight week of gains; Oil price rise, output forecast offer support

8 Oct 2022 12:58 pm
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Mumbai, 8 OCT (Commoditiescontrol): ICE raw sugar prices have extended their second straight weekly gains, gaining support from the rising crude oil prices and output cut forecasts.

Sweetener settled Friday's session higher, extending the market's rebound from a two-month low, as crude oil price continued to surge following OPEC+'s decision this week to make its largest supply cut since 2020.

A rally in crude prices Thursday to a 3-week high underpinned sugar prices, dealers said. Higher crude prices benefit ethanol and may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies.

ICE March raw sugar contract settled 0.22 cent, or 1.19%, higher at 18.68 cents per lb. Sugar prices Friday moved higher for the fourth consecutive session.

December London white sugar rose $1.50, or 0.27%, at $552.80 a tonne. For the week, March contract added 1.41% while London white rallied 4.56%, climbing to a 3-1/2 week high.

Meanwhile, the forecast for drop in sugar in leading regions across the globe, especially Brazil and European region, is currently supporting prices up.

Bullish factors...

Dealers said that rising oil prices could impact production strategies at Brazilian mills, shifting some cane allocation to ethanol and away from sugar if gasoline prices rise as well.

There was also talk of rains in Brazil hurting the pace of harvesting and threatening to cut sugar production in the season. Already, there is a decline in Brazil's Center-South sugar output. Unica reported last Tuesday that Center-South sugar output in the 2022/23 marketing year through mid-Sep was down 8.4% on year to 24.634 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.

European Union sugar production is forecast to fall by 6.9% in the 2022/23 season to 15.5 million tonnes following a drop in planted area and a severe summer drought in many parts of the trading bloc, the European Commission said in a short-term outlook issued on Wednesday.

This past 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.

Germany's refined sugar production from beets in the 2022/23 season now starting is forecast to fall to about 4.05 million tonnes from 4.57 million tonnes last season, the WVZ sugar industry association said on Thursday.

Speculators reduced their net short position in futures of raw sugar on ICE U.S. in the week to Oct. 4. Funds cut 2,001 contracts to their bearish bet in raw sugar, taking their net short position in the sweetener to 26,523 lots.

Bearish factors...

In a bearish factor, StoneX on Sep 18 projected that Brazil Center-South 2023/24 sugar production would 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.

Robust sugar exports from India are bearish for prices after India 2021/22 sugar exports jumped 57% on year to a record 11 MMT. The Indian Sugar Mills Association (ISMA) estimates that India's 2021/22 sugar production (Oct 1-Sep 30) rose 2.9% on year to 35.9 MMT.

On Monday, support for March sugar contract is at 18.42 cents and 18.15 cents with resistance at 18.84 cents and 18.99 cents.

While, October contract expiry last week, came in handy for sweetener's rally, this week gain in oil prices and output forecast joined hands in lifting the price. Considering the reduction in funds short position and supportive underlying trends some more gains can-not be ruled out. However, given the broader markets set-up, the sweetener may get knocked down by liquidation pressure. The risk of geopolitical scenario, rate hikes, recessionary fears, etc may coming into play and destabilise financial markets.

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

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