Mumbai, 7 May (Commoditiescontrol): After back-to-back week of gains, the ICE raw sugar future finished the week to May 5th on a flat note. The recent price surge to multi-year highs prompted 'long' traders to lighten their position even as supply uncertainty continue to point more gains in prices going forward.
On Friday, ICE sugar futures climbed towards recent peak led by tight supplies, along with the stronger Brazilian Real and rise in crude oil prices. Higher crude prices benefit ethanol and may prompt the world's sugar mills to divert more cane crushing toward ethanol production than sugar, thus curbing sugar supplies.
Dealers said the correction seen since last week's highs seems to have run its course, with lots of buying interest below 25 cents. They expect the market to remain firm near term given tight supplies in India, Thailand, China and the European Union.
ICE July raw sugar edged up 0.8 cents or 3.1% to 26.32 cents, having hit an 11-1/2 year peak last week. August London white sugar gained $17.90 or 2.6%, at $715.70 a tonne.
Bullish factors....
Sugar remains underpinned by tight supplies, though Citi expects this quarter to see the price peak as a forecast bumper 2023/24 crop from top producer Brazil becomes available.
As per dealers, sugar had found solid support below 25 cents as the market remained underpinned by tight supplies following lower-than-expected harvests in India, Thailand and China.
The producers and experts have reduced their output expectations for the current sugar harvest in Mexico by 10% following a months-long drought.
There was also chatting about a possible new restriction on Indian sugar imports, with no confirmation. India's Food Secretary said India might not allow additional sugar exports this year due to lower-than-expected sugar production. India has allowed only 6 MMT of sugar exports in 2022/23 after permitting 11.2 MMT in 2021/22, down 46% on year. Also, the Indian Sugar Mills Association (ISMA) reported India's Oct-Mar sugar production fell 3.3% on year to 29.96 MMT. India is the world's second-largest sugar producer.
Similar views are coming from across the globe. 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.
eanwhile, Fitch Solutions has "Downgraded harvest expectations in Brazil, India and Europe". It said supply concerns are driving prices higher, while being supported by the continued diversion of sugarcane towards ethanol production in India.
Recently, the USDA cut its view for China's sugar production by 1 million tonnes due to bad weather, while the Brazilian government released data saying the sugarcane area fell in 2023 to the smallest in 12 years as farmers switch to grains.
Bearish factors....
On the other side of spectrum, prospects of higher sugar production are weighing on market sentiment. Conab on Apr 26 predicted Brazil's 2023/24 sugar output would climb 4.7% y/y to 38.8 MMT, the second most ever, as crops recover from the previous season's adverse weather. Brazil's center-south sugar production is seen growing 13% to 38.3 million tonnes, consultancy Datagro said.
Another bearish factor for sugar was Tuesday's plunge in crude prices by more than 5% to a 5-week low. Weaker crude prices undercut ethanol prices and may prompt the world's sugar mills to divert more cane crushing toward sugar production than ethanol, thus boosting sugar supplies.
An increase in Brazil's sugar output sparked long liquidation pressures in sugar futures after Unica reported that Brazil's 2022/23 sugar production from Oct through March rose 5.2% on year to 33.728 MMT. Brazil exported 971,592 tonnes of sugar in April, down from 1.32 million tonnes in the same month last year.
Sugar prices have been under pressure on farmer hedge selling earlier this week ahead of the upcoming Brazil sugar harvest.
ICE futures reported 940,000 MT of sugar was delivered to settle the expiration of the May 2023 NY sugar contract, up sharply from 181,600 MT delivered last year to settle the May 2022 NY sugar contract.
Meanwhile, the speculators have reduced their bullish bets in futures of raw sugar on ICE U.S. in the week to May 2, data from the Commodity Futures Trading Commission (CFTC) showed on Friday. Funds cut 7,507 contracts to their net long position in raw sugar, taking it to 155,058 lots in the period.
ICE open interest data too show traders cutting their long position. OI stood at more than 1mn on April 4th has now declined to 940,050 on May 2nd.
Overall, Citi sees prices averaging 22.90 cents this year, as the market stays in deficit for 2022/23 and likely 2023/24.
Trader Sucden said it sees limitations to the amount of sugar Brazil will be able to move during the peak months of the export season due to port congestion.
For Monday, support for the July Sugar contract is at 25.79 cents and 25.26 cents, with resistance at 26.65 cents and 26.98 cents.
(By Commoditiescontrol Bureau: 09820130172)
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