Mumbai (Commodities Control) –The supply situation of the sweetener in the world’s two top producers is presently dictating the global sugar market as former is facing with dry weather concerns impacting its production while the latter has a heavy stockpile.
ICE Raw Sugar closed higher for the week on the concerns of draught in Brazil and crude oil rallies. Strong Brazilian Real was also supportive for the market. On the other side, India is likely to hit a fresh record of sugar exports as higher global prices have raised the prospect of more shipments of the sweetener from the country.
The most active contract of sugar for delivery in July settled higher by 69 points at 17.36 cents per lb last trading session 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 06 points up 03 points from previous week reading of 03 points. But forecast of rains in Brazil sugar belt in next few days will keep price under pressure.
Global Market closed on Monday for Memorialday holiday. Market opened firm on Tuesday on concerns of draught in Brazil and strong crude oil prices .For next two days markets were marginally down on concern of ample supply from India around 18 cents. On last trading day of the week on Friday market again closed with the gains as concern for draught in Brazil remerged again on India's decision to bring forward sales of fuel containing 20% ethanol to 2023 from 2025 boosted the longer-term outlook for sugar.
As per CFTC report for week ended on June 01 showed that for ICE raw sugar managed money net long position(futures and option combined) increased by 12,498 contracts to 2,39,675 contracts .On the other hand trade increased their short position by 11,763 contracts to 272,552 contracts. The open interest was reported at 12,27,921 contracts up by 21,912 contract from previous week.
The FAO Sugar Price Index increased in May by 6.8 percent from April, due largely to harvest delays and concerns over reduced crop yields in Brazil, the world's largest sugar exporter, even as large export volumes from India contributed to easing the price surge.
Bullish factors for Sugar
Draught concern in Brazil world’s top producer is supporting rallies in the prices of the sweetener. Due to excessive dryness in main sugar growing belt yield for sugar is likely to reduce significantly. As per some analysts, Brazil’s sugar production in the current season is likely to fall below 34 million tonnes down from previous estimate of 36 million tonnes projected two weeks ago.
Strength of the Brazilian real against the U.S. dollar is another positive factor for sugar prices. The real on Friday rallied to a new 5-1/2 month high against the dollar
Strong crude oil price encourages diversion to ethanol production from sugar production.
India's government will bring forward to 2023 from 2025 the possibility of fuel companies selling gasoline containing up to 20% of ethanol (E20)
Bearish Factors
The International Sugar Organization (ISO) on Friday forecast a smaller than previously expected global sugar deficit, with the revision driven largely by lower consumption. "Consumption was lowered in this assessment to reflect the upsurge in COVID-19 cases in India and Brazil and restrictions on holiday travel," the ISO said.
Outlook for increased sugar supplies from India. On Wednesday, Balrampur Chini, India's second-largest sugar producer, said it expects India's 2020/21 sugar exports to jump to a record 6.8 MMT. Also, the Indian Sugar Mills Association reported Tuesday that India's sugar output during Oct 1-May 31 rose +13% y/y to 30.57 MMT from 27.01 MMT a year earlier due to a bumper crop and increased cane crushing.
There is ample sugar supply for the medium term and Indian exports are expected to contain prices from the mid 18’s as at this rate Indian exports become viable without subsidy, particularly when new Indian production comes on line later in the year.
The white premium remains remarkably weak due to lower consumption demand.
Outlook for Next Week
Market has discounted all the positive factors in price. Further as said earlier there is possibility if ample supply above 18cents so up side appears to be limited but at the same time Brazil draught concern and strong crude prices are likely to restrict downside. Hence market may trade range bound.
Support and resistance for July contract is 17.20 and 18 cents/lb
(By Commoditiescontrol Bureau: +91-22-40015505)
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