Mumbai (Commodities Control) – It was a chart full of wild, sharp swings for sugar #11 for the week ended 8th May. After a 12% gain in the past week, ICE raw sugar futures gave up 6.2% this week weighed by global surplus concerns and persistent weakness in Brazilian currency. High volatility in energy prices also shook up sugar prices between 4th and 8th May.
NY sugar prices on Friday fell to a 1-week low and posted moderate losses on supply concerns. There were no cues from London markets for refined sugar, being closed due to a local bank holiday.
On Friday, July raw sugar settled down 0.04 cents, or 0.4%, at 10.29 cents per lb.
Chart indicates short covering in action. Managed money in NY sugar slashed its net shorts for the first time in 7 weeks. According to the latest CFTC data for the week ended 5th May, managed money in NY sugar cut its net shorts to 55,404 contracts as compared with 70,800 contracts in the past week, down 15,396 contracts or 22%.
Meanwhile, open interest dipped by 31,955 contracts at 11,28,325 contracts.
Friday’s session, according to the dealers saw market accommodating after sharp swings in previous sessions.
After hitting a month’s high on previous Friday, ICE raw sugar futures closed sharply lower on Monday. Sugar prices on Monday retreated on forecasts for a global sugar surplus and on weakness in the Brazilian real. July raw sugar settled down 0.57 cent, or 5.2%, at 10.40 cents per lb.
This came after JPMorgan Chase, on Monday, forecasted a global 2020/21 sugar surplus of 2.8 MMT compared with a February forecast for a 4.8 MMT sugar deficit, citing widespread Covid-19 lockdowns and worsening ethanol demand.
JPMorgan said, "a rapid adjustment in ethanol production economics will likely drive Brazil's Center-South mills to all but maximize the sugar mix, amid sustained oil price weakness."
While Britain's Tate & Lyle said U.S. demand for its sugars and syrups used by restaurants, cinemas and other public facilities fell in April as thousands of businesses remained closed by coronavirus lockdowns.
Sugar did manage to gather itself on Tuesday on the back of 20% rally in crude oil prices. Strength in energy prices helped ICE raw sugar settle 3.7% higher. But the gains were capped due to estimates from Conab that Brazil's 2020/21 sugar production will climb 18.5% y/y to 35.3 MMT.
Millers will likely divert more cane juice to produce sugar as the outlook for ethanol has been decimated by drop in consumption and prices.
Conab projects Brazil's mills will divert 42.4% of cane juice to produce sugar in 2020/21, up from 34.9% in 2019/20. Unica reported last Wednesday that Brazil sugarcane-based ethanol sales the first half of April tumbled 32% y/y to 800 mln liters.
Another negative was a projection from the USDA's Foreign Agricultural Service (FAS) that EU 2020/21 sugar production will climb 2.5% y/y to 17.68 MMT.
Wednesday’s settlement wiped any hope of positive closing in the sweetener, as the most active contract declined nearly 5% weighed by slump in crude prices and weak Brazilian Real.
While on Thursday, raw sugar prices settled tad bit positive.
However bearish sentiment persists as lockdowns are seen hurting demand. Sales of products that use a lot of sugar to be made, such as soda, are suffering sharply from closure of bars and restaurants.
"Sugar consumption will fall, there is no doubt. And higher home consumption will not offset losses in out-of-home demand," said a U.S. commodity risk analyst.
Sugar prices have some support from reduced sugar production in India after the Indian Sugar Mills Association (ISMA) reported last Friday that India Oct-Apr sugar output fell 20% y/y to 25.8 MMT.
Meanwhile Indian sugar exports rose due to good demand from Indonesia and Iran as the rupee slid to a record low, increasing exporters' margins.
Indian sugar mills have already dispatched 3.7 million tonnes out of around 4.1 million tonnes of contracts signed for exports in the 2019/20 marketing year ending on Sept. 30.
Experts are watching the Brazil mills trying to cover the lack of White Sugar in the market and have shifted to Sugar at the expense of Ethanol production due to the difference in prices and profitability.
Reports indicate that little is on offer from India in part due to logistical and harvest problems caused by the Coronavirus. Thailand might also have less this year due to reduced planted area and erratic rains during the monsoon season.
Support and Resistance for sugar #11 lies at 9.98 cents and 10.54 cents per lb, respectively.
(Commodities Control Bureau)
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