Mumbai, 31 MAR (Commoditiescontrol): Sugar complex is in the sweet spot these days, with both fundamental and technical factors falling in line to push the prices of sweetener higher. The commodity is enjoying probably the best scenario among most others traded on the derivative market.
ICE raw sugar future prices surged to six-year high, due to tight global supply prospect while firm trend in crude oil prices encouraging sugar mills to divert more cane crushing toward ethanol production than sugar, thus curbing sugar supplies.
On Friday, ICE May raw sugar settled up 0.29 cent, or 1.3%, at 22.25 cents per lb, after rising earlier to 22.36 cents/lb, the highest price since November 2016. The contract rose 6.9% in the week.
May London white sugar fell $0.40, or 0.1%, to $630.30 a tonne, just shy of the previous session's 10-1/2 year high of $634.80. It gained 5.5% in the week.
During the last few sessions, the market derived support from tight supplies after lower-than-expected production in several countries, including India and Thailand. The European Union expects a decline in production to lead to a rise in imports and a fall in the planted area for the 2023/24 season.
The harvest in the Centre-South region of Brazil, which is now starting, could eventually provide some relief, dealers said, but there are worries among traders regarding the capacity of ports to deal with large crops of soybeans, sugar and corn.
Fitch Solutions said, "Downgraded harvest expectations in Brazil, India and Europe are driving supply concerns, while prices are also being supported by the continued diversion of sugarcane towards ethanol production in India."
Dealers said the availability of white sugar to tender against the May contract appeared limited after lower-than-expected crops in several countries. Tighter global sugar supplies are bullish for prices.
Meanwhile, the strength in crude prices is supportive of sugar. WTI crude oil Thursday rose to a 2-week high, which benefits ethanol prices and may prompt the world's sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies.
Strength in the Brazilian real is also bullish for sugar after the real Thursday rose to a 1-3/4 month high against the dollar. The stronger real discourages export selling from Brazil's sugar producers.
Bullish factors....
Recently, StoneX Group have cut their 2022/23 global sugar surplus estimate to 2.5 MMT from a Jan forecast of 5 MMT, citing lower production in India due to excessive rain.
The International Sugar Organization (ISO) on Feb 24 raised its 2021/22 global sugar deficit estimate to 2.25 MMT from a November estimate of -1.67 MMT and cut its 2022/23 global sugar surplus estimate to 4.15 MMT from 6.19 MMT. However, the ISO still projects that global 2022/23 sugar production will climb +4.8% y/y to a record high of 180.4 MMT.
Sugar prices have underlying support from concern about smaller sugar production in India. India's top sugar-producing state, Maharashtra, could produce nearly 16% less sugar than previously estimated because mills are closing early owing to limited availability of sugar cane, a senior state government official told Reuters on Monday.
The sugar trade body, Indian Sugar Mills Association (ISMA) on Jan 31 cut its 2022/23 India sugar production estimate to 34 MMT from an Oct estimate of 36.5 MMT and cut its India 2022/23 sugar export estimate to 6.1 MMT from an Oct forecast of 9 MMT. It also expects sugar mills to divert 4.5-5.0 MMT of sugar to ethanol production in 2022/23. Last Friday, the trade body 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.
Meanwhile, the speculators have raised their bullish bets in futures of raw sugar on ICE U.S. in the week to March 28, data from the Commodity Futures Trading Commission (CFTC) showed on Friday. Funds added 11,243 contracts to their net long position in raw sugar, taking it to 138,217 lots in the period.
Bearish factors....
Couple of strong output forecast from the central American region could provide relief against runway sugar prices.
An increase in Brazil's sugar output is bearish for prices after Unica reported last Friday that Brazil's 2022/23 sugar production from Oct through mid-March rose 4.7% on year to 33.583 MMT. Adding to the negative factor was the report from Datagro on Mar 15 that projected 13.1% year on year increase in Brazil's Center South sugar output to 38.3 MMT. Brazil is the world's largest sugar producer.
Amid rising sugar prices, there is prospect of additional sugar exports from India. In fact, Indian Food Minister Tomar Singh said on Mar 13 that the government 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.
Meanwhile, a lift in Thailand sugar will also result in alleviating supply pressure. As per the Feb 1 projection from the Thai Sugar Mills Corp, the country's sugar production during 2022/23 would climb 14% on year to 11.55 MMT. Likewise, sugar exports too are projected to increase 17% on year to 9.05 MMT.
Green Pool Commodity Specialists recently said that Thailand's 2023 sugar production reached 6.59 MMT as of Feb 8, up nearly 10% from last season, with sugar content in the cane crop at a record high. Thailand is the world's second-largest sugar exporter.
Given the strong fundamental factors, Sugar prices looks all set to move higher. Technical indicators too suggest strong possibility of prices breaking out from the current range of 18-22 cents.
For Monday, support for the May Sugar contract is at 21.90 cents and 21.55 cents, with resistance at 22.48 cents and 22.71 cents.
(By Commoditiescontrol Bureau: 09820130172)
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