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Weekly: ICE Sugar posts weekly loss; FOMC meet outcome in focus

19 Mar 2023 4:11 pm
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Mumbai, 18 MAR (Commoditiescontrol): Following the footsteps of other commodities, sugar counter accumulated gains during the initial period of the week, however, the aspiration of further gains were leveled by growing concerns of bank run on other risky assets. The markets are gearing up for the next-weeks FOMC meet wherein the expectation of moderation on rate trajectory is starting to build. But, given the little help from macro indicators, the Federal Reserve may have its work cut out.

Meanwhile, sugar prices retreated lower after having started the week on a strong note. The optimism was driven by short supply prospect after India struggled to keep the pace with production estimates. However, the Brazilian planters came to rescue with higher output forecast.

Apparently, ICE raw sugar futures eased on Friday. May ICE raw sugar lost 0.43% or 9 cents at 20.67 cents per lb. For the week, the contract lost 2.32%. The asset hit a contract high of 21.33 cents last week.

May London white sugar settled $0.50, or 0.09% lower, at $585.10 a tonne. The contract closed the week 0.81% lower.

Sugar prices took hit from weaker crude oil prices. A slump of more than -1% in WTI crude oil prices to a 15-month low weighed on sugar.

Lower crude prices undercut ethanol prices and may prompt global sugar mills to divert more sugarcane crushing toward sugar production rather than ethanol, thus boosting sugar supplies.

Bullish factors....

Sugar prices gathered support after the India's Sugar Mills Association (ISMA) reported that India's 2022/23 sugar output from Oct-Mar 15 fell 1.1% on year to 28.2 MMT. India is the world's second-largest sugar producer.

Dealers said the market continued to derive support from concern about diminishing prospects for production in countries, including China, India, Thailand and the European Union.

Dealers also noted delays to shipments out of the Brazilian port of Paranagua could disrupt the flow of sugar as well as soybeans.

Recent run-up of sugar prices was driven partly by diminishing prospects for production in India, Thailand and China, which have helped to tighten global supplies.

"We expect to see the end of the bull run in the near term," broker Sucden Financial said in a technical note.

Meanwhile, some mills were closing in Thailand slightly earlier than normal and production was likely to be lower than had been expected.

Sugar output in China's top growing region is set to be the lowest in six years, said Australia-based Green Pool Commodities on Thursday, as it revised down its estimate for production in one of the world's top producers.

In India, some mills have already stopped crushing cane in the state of Maharashtra, the country's biggest producer. More than two dozen mills in Maharashtra had stopped cane crushing by the end of February, nearly two months earlier than last year, a senior state government official said.

Recently, India's Food Minister Tomar Singh said the country could allow another 1 MMT of sugar exports if India's 2022/23 sugar output reaches the government target of 33.6 MMT. India has already allowed 6 MMT of sugar exports.

Last week, India government fixed a local quota at 22 lakh metric tonnes for March. The move was aimed at checking domestic price growth.

A diminishing outlook for production in India has helped to boost prices. India is likely to produce 33.5 million tonnes of sugar in the season to Sept. 30 this year, down 2.9% from the previous forecast of 34.5 million tonnes, a leading trade body said. The market structure points to tight near-term supplies.

Elsewhere, the French sugar beet crop area is set to fall to a 14-year low this year despite high prices, with farmers deterred by potential crop damage because of pesticide restrictions.

Bearish factors....

A bearish factor for sugar was last Friday's report from Unica that showed Brazil's 2022/23 sugar production from Oct-Feb rose 4.5% on year to 33.504 MMT.

Since last Friday, sugar prices have been on the defensive when Unica reported that Brazil's 2022/23 sugar production through Oct-Feb rose 4.5% on year to 33.504 MMT. Also, Datagro last Wednesday projected that 2023/24 sugar production in Brazil's Center South would climb by 13.1% on year to 38.3 MMT. Brazil is the world's largest sugar producer.

An improving outlook for sugar production in Centre-South Brazil during upcoming 2023/24 has, however, helped to stall the advance.

Brazilian energy producer Raizen SA expects 48% of the cane crop in the Centre-South region to be used to produce sugar in the upcoming 2023/24 season. The forecast was slightly above a median forecast of 46% in a Reuters poll issued earlier this month.

Conclusion: Next week will be a crucial considering that the Federal Reserve Open Market Committee will meet to decide on rate. Traders will be awaiting to understand the tone of FOMC and the growth outlook. After the recent bank runs, the FOM tone is likely to dovish and rate hike may be smaller. However, prevailing uncertainty on the growth front it is advisable to stay light on position.

For Monday, support for the May Sugar contract is at 20.49 cents and 20.30 cents, with resistance at 20.90 cents and 21.12 cents.

(By Commoditiescontrol Bureau: 09820130172)

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