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Weekly: ICE raw sugar post 3rd straight weekly gain on India export uncertainty, strong crude oil prices

5 Nov 2022 7:51 pm
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Mumbai, 5 NOV (Commoditiescontrol): ICE raw sugar prices have continued to rally, marking their third straight weekly advance, as supply uncertainties and support from strength of crude oil joined hands to turn the tide in favour of bulls.

On Friday, ICE raw sugar futures hit a two week high on lingering uncertainty over India's export policy. Surged in global equities and rise in oil prices following reports China may relax its COVID rules, have fuelled enthusiasm among risk takers.

ICE March raw sugar rose 1.30% to $18.71 per lb, having hit a two week top at $18.82. The contract added 6.43% for the week. December London white sugar rose 0.58% to $539.00 a tonne. For the week, London white added 4.54%.


Bullish factors...

During the week gone by, there was more positive news flow to what was received in the previous week. Leading from the front was the news on imminent supply constraints which has not just revived sentiments but also provided major thrust to reverse declinie trend. Dealers have noted that the market is still waiting for news from India, a top sugar producer, as to how much sugar it will allow traders to ship this season, plus there is uncertainty on output from Brazil as well.

Sugar prices found support on Bloomberg's report on Monday citing unnamed sources as saying that India may limit exports to 9 million MT, lower than the 2021/22 quota of 11.2 million MT. While down from the previous marketing year, the 9 million MT export quota would be higher than the 8 million MT quota that the Indian government previously considered due to a larger-than-expected Indian sugar surplus, according to Bloomberg.

The sweetener was benefited from the sharp rally of more than 4% in crude oil prices, which was sparked by reports that China plans to ease its Covid Zero policy. Stronger crude oil prices boost ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus reducing sugar supplies.

Sugar prices also saw support from Friday's 1.5% rally in the Brazilian real to a 2-month high, since a stronger real discourages export selling from Brazil's coffee producers.

In other bullish factor, the recent heavy rain in Brazil has hurt sugar processing and delayed port export operations. As a result of excessive rain, commodity trader Czarnikow on Monday reduced its forecast for Brazilian 2022/23 sugar production by 100,000 MT from its early-October forecast.

This was the second time in a month that leading industry forecasters have cut their production estimates. Signs of smaller near-term sugar production in Brazil are supportive of prices. Unica reported Wednesday that Center-South sugar output in the 2022/23 marketing year through mid-October was down 7.3% on year to 28.163 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.

Elsewhere, Europe to continues to sizzle due to hot weather conditions, which dampens region's production prospect of sweetener. 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.


Bearish factors...

A major bearish factor for sugar prices is the prospect of increased sugar supply. Last Tuesday, the International Sugar Organization (ISO) projected that global 2022/23 sugar production would climb 4.5% on year to a 5-year high of 181.9 MMT. Also, ISO projected that the 2022/23 global sugar market would be in a surplus of 5.6 MMT.

Higher sugar output in India is bearish for prices. Last Monday, the Indian Sugar Mills Association predicted that India's 2022/23 sugar production (Oct 1-Sep 30) would climb 2% on year to 36.5 MMT as Indian farmers boosted their planted cane acreage by 5.4% on year to 5.6 mln hectares. In 2021/22, India's sugar production rose 2.9% on year to 35.8 MMT. India is the world's second-largest sugar producer. Also, robust sugar exports from India are bearish for prices after India 2021/22 sugar exports jumped 57% on year to a record 11 MMT.

Further, StoneX on September 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.

In news, Indonesia, one of the world's top raw sugar importers, will expand its sugar plantation area to try to become self-sufficient in the next five years and is eyeing development of renewable sugar-based ethanol afterwards.

Meanwhile, Speculators switched to a net short position on futures of raw sugar on the ICE U.S. exchange in the week to November 1, data from the Commodity Futures Trading Commission (CFTC) showed on Friday. Funds have cut 29,834 lots on raw sugar to a net short of 1,942 contracts, the CFTC said.

Over all the commodity's prospects are fairly balance between bulls and bears. Opportunity provided by sugar prices sliding to 20-month low was grabbed by bears to cover their position. The pull-back in prices over the last couple of weeks, is fairly supportive to the above assumption. What needs to be seen is, whether the bulls stay on the course to push bears back, strongly enough to latch on to recent gains and gather further momentum in pushing prices higher. Well, the smart money trend are hinting.....it will not be an easy task.

For Monday, support for March sugar contract is at 18.52 cents and 18.33 cents with resistance at 18.86 cents and 19.01 cents.

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


       
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