Mumbai (Commodities Control) - ICE Raw Sugar closed higher on short covering in the last week and prices of the sweetener are likely to remain sideways this week as forecast of rains in the major sugar belts in Brazil, the world’s leading sugar grower, may limit the upward movement.
The most active July contract settled higher by 69 points at 17.36 cents per lb on Friday. October contract the second most active contract closed with gains of 55 points at 17.39 cents per lb. Spread between July/October was 03 points down from previous week reading of 17 points. But forecast of rains in Brazil sugar belt in next few days will keep price under pressure, said a market observer.
Sugar futures were traded firm for most of the days for the week except on Wednesday when market lost around 1.5 percent (July contract) .Spread between July and October contract continued to narrow indicating that some of the participants were interested in taking delivery for July contract. This was reflected in short covering by the trade .But corresponding long liquidation by managed money capped the price gains.
As per CFTC report for week ended on May18 showed that for ICE raw sugar managed money net long position (futures and option combined) dropped by 10,790 contracts to 238,938 contracts .On the other hand trade reduced their short position by 32,295 contracts to 283,406 contracts. The open interest was reported at 12,21,164 contracts down by 16,139 contract from previous week.
Bullish factors for Sugar
Brazil’s dry weather concerns: Draught in Brazil world’s top sugar producer is one of the major bullish factors for the sweetener. The National Weather System (NWS) on Friday issued a water emergency alert for central Brazil. The NWS said the rainfall deficit in Brazil is "severe" and that the future weather outlook shows most of Brazil's central region will receive little rain from June to August.
Strong local currency: Strength in the Brazilian real is another positive factor for sugar prices. The real climbed to a 2-week high against the dollar on Friday, which discourages export selling from Brazil's sugar producers. It seems Brazil real will continue to gain strength as downward trend commodity cycle has reversed which will be positive for Brazil as it is one of the big commodity supplier.
Strong Crude oil prices : Strong crude oil price encourages diversion to ethanol production from sugar production.
Last Tuesday, Conab forecast that Brazil 2021/22 sugar production will fall -5.7% y/y to 38.9 MMT. Conab also cut its Brazil 2020/21 sugar production estimate to 41.3 MMT from a Dec forecast of 41.8 MMT. Suedezucker AG, the EU's top sugar producer, said last Thursday that it expects EU 2021/22 sugar production to fall -4.0% y/y to 14.5 MMT.
Sugar has support from falling production in Thailand, the world's second-largest sugar exporter. The Thailand Office of the Cane & Sugar Board reported March 17 that Thailand's 2020/21 sugar production from Dec 10-Mar 15 fell -8.2% y/y to 7.5 MMT.
Negative Factors
Brazil’s Production: Sugar production by Brazil, the world's largest sugar producer, in 2020/21 (Apr/Mar) climbed by +32% y/y to 39.3 MMT from 29.8 MMT in 2019/20, as millers diverted 46.4% of cane juice to produce sugar (up from 34.9% in 2019/20) due to the weak outlook for ethanol demand and prices (Conab).
Stronger-than-expected sugar output in Brazil's Center-South, the country's largest sugar-producing region. Unica on Wednesday reported that Brazil's Center-South produced 2.38 MMT of sugar in the first half of May, above expectations of 2.24 MMT.
India’s Production: One of the negative factors for global sugar markets is higher sugar output in India, the world's third-largest sugar exporter. The Indian Sugar Mills Association reported last Monday that India's sugar output during Oct 1-May 15 rose +14% y/y to 30.36 MMT from 26.53 MMT a year earlier due to a bumper crop and increased cane crushing.
In near term, sugar prices are likely to trade sideways to downwards on prediction rainfall by Weather service agency Maxar, in next few days across southern Minas Gerais, Sao Paulo, Parana and southern Mato Grosso . Other factors which market will look for will be movement of Brazil’s currency Real a strong Real will be supportive for the sugar prices. Secondly, movement of crude oil prices will be important a strong crude oil will be again supportive for the sugar prices .Lastly Opening of global economy from lockdown will be supportive for sugar consumption and prices.
So market may trade sideways down for short term but downside seems limited from here.
Support and resistance for July contract is 16.60 and 17.65 cents/lb