Mumbai (Commoditiescontrol): ICE raw sugar futures edged higher this week. Sugar prices were supported on concern that Brazil's sugar production will be sharply curtained due to frost and drought damage. The most active October contract closed with a gain of 77 points at 18.68 cents per lb. The March contract settled higher by 8 points at 19.23 cents per lb last trading session on Friday. White sugar#5 most active October contract was up $13.9/Mt to close the week at $459.6/MT.Spread between white sugar#5 and Sugar#11 was $48/MT
Dealers said they were keenly awaiting cane crush data for Brazil's Centre-South region, covering the second half of July, which could give indications of damage from the frosts. The data is expected early next week.
Speculators are seen increasing their long position in sugar in the short term, spurred by post-frost downgrades to Brazilian production, said a report on Friday.
As per the CFTC weekly report, ICE raw sugar managed money was 247,573 contracts net long on 3rd August; up 15,046 contracts from the previous week. Long side positions increased by 15,683 contracts, while short side positions also witnessed a rise of 637 contracts. Trade increased their long side position by 11,182 contracts and short increased by 10,450 contracts. The open interest for the week was registered at 1,161,551 vs 1,139,810 contracts last week.
Bullish Factors
On Tuesday, Wilmar International said that frost and drought damage this year would cut Brazil's 2021/22 sugar production to 28 MMT, down 27 percent y/y and the lowest output in at least a decade. Wilmar also warned that Brazil's 2022/23 sugar cane crop might not recover due to this year's drought and frost that damaged cane plants.
Sugar prices also garnered support on Tuesday after StoneX cut its 2021/22 global sugar market outlook to a deficit of -1.0 MMT from a prior forecast of a +1.7 MMT surplus, which would be the third consecutive year of global sugar deficits.
According to the International Sugar Organization (ISO), World sugar production in 2020/21 (Oct/Sep) will fall -0.2 percent y/y to 169.2 MMT after falling -8.4 percent in 2019/20 to 169.6 MMT. The world sugar deficit in 2020/21 will widen to a -3.1 MMT deficit from a +900,000 MT surplus in 2019/20.
Bearish Factors
WTI crude oil fell more than 3 percent to a 2-week low, which undercut ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol production, thus boosting sugar supplies.
Demand for sugar remains poor and there is ample supply for the current level this is likely to cap major price gains. This is evident from the converging price spread between White sugar#5 and Sugar #11.
The outlook for ample sugar production from India is negative for sugar prices after India's Sugar Mills Association on July 14 said it projects India 2021/22 sugar production at 31 MMT, up slightly from 30.9 MMT expected in 2020/21. India is the world's second-largest sugar producer.
Prices are likely to remain strong for current week as Brazil’s crop is likely to be revised lower again by many analysts. But the upside is limited from the current level as with rising international price supply from India will increase. Immediate support and resistance for Sugar #11 lie at 18.28 and 19.12 cents per lb, respectively.
(By Commoditiescontrol Bureau: +91-22-40015505)
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