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Weekly: ICE raw sugar futures scaled higher amid strength in crude oil and Brazilian real

12 Dec 2021 9:17 pm
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Mumbai (Commoditiescontrol): ICE raw sugar futures scaled higher this week amid strength in crude oil prices and Brazilian real.

The most active March raw sugar contract settled higher by 0.96 cents at 19.71 cents per lb, while the March white sugar contract settled higher $24.5 at $ 511.40 last trading session on Friday.

Dealers said the market is regaining ground after concern about the new COVID-19 variant last week triggered heavy fund selling of many commodities including raw sugar.

However, the variant is unlikely to have a significant impact on sugar supply or demand.

"We have no knowledge of how the new variant could affect sugar, but very much doubt it will affect supply chains or consumption," broker Marex said in a note.

Commonwealth Bank of Australia analyst Tobin Gorey said mills in Brazil, some of which can switch between using cane to make biofuel ethanol or sugar, had hedged a smaller proportion of production than at the same stage a year ago.

"The lower hedge level is in part a sign that Brazil's mills are reluctant to commit to sugar over ethanol yet," he said in a market update, as energy prices remain high and the outlook for fuel prices next year is positive.

As per the CFTC weekly report, ICE raw sugar managed money was 155,389 contracts net long on 7th December; down 22,844 contracts from the previous week. Long side positions decreased by 25,062 contracts, and short side positions witnessed a fall of 2,218 contracts. Trade was 170,392 contracts net short. Long side position increased by 13,038 contracts while short decreased by 4,306 contracts. The open interest for the week was registered at 1,033,296 vs 1,049,970 contracts last week.

Bullish Factors

Sugar has underlying support from the recent damage to Brazil's sugar crops from frost and drought.

Conab, on Nov 23, cut its Brazil 2021/22 sugar production estimate to 33.9 MMT from an Aug forecast of 36.9 MMT, down 17.9 percent y/y.

Unica on Nov 24 reported that the total amount of sugarcane crushed in the first half of November fell 38 percent y/y to 12.5 MMT, a smaller-than-expected decline than expectations of 57 percent y/y to 8.7 MMT. The total amount of sugar produced fell 49.7 percent y/y to 626,000 MT.

Rabobank said that Brazil is expected to face a sugarcane shortage next year, which will limit its capacity to increase exports. Rabobank also said the development of Brazil's sugarcane crop is being delayed by frost damage and delays and that high crude oil prices will help keep sugar prices high into next year.

The stronger Brazilian real discourages Brazil's sugar producers from export selling.

Bearish Factors

The Indian Sugar Mills Association (ISMA) said India currently has an opening balance of +8.18 MMT of sugar as of Oct 1 and needs to export about 6 MMT in 2021/22, although that would be 15 percent y/y less than 7.1 MMT in 2020/21.

India sugar output is robust after the ISMA reported last Thursday that India sugar production from Oct 1-Nov 30 rose +9.7 percent y/y to 4.72 MMT.

The International Sugar Organization (ISO) recently projected a global 2021/22 sugar deficit of -2.55 MMT, a smaller deficit than an August forecast of -3.58 MMT.

As per the India Sugar Mills Association, sugar production from India, the world's second-largest sugar producer, will climb +13 percent y/y to 31 MMT in 2020/21 due to a good monsoon season.

A negative factor for sugar is the outlook for higher Thailand sugar exports after Czarnikow projected Thailand 2021/22 sugar exports would surge +67 percent y/y to 6.7 MMT.

On Sep 8, the Thailand Sugar Millers Corp forecast Thailand 2021/22 sugar production could climb 44 percent y/y to 11 MMT due to beneficial rain and increased plantings. Thailand is the world's second-largest sugar exporter.

According to the International Sugar Organization (ISO), World sugar production in 2021/22 (Oct/Sep) will climb +0.08 percent y/y to 170.47 MMT from 170.335 MMT in 2020/21.

Market are likely to witness minor correct from current level after a rally of 150 points but prices are likely to move up again on positive fundamentals. Immediate support and resistance for Sugar #11 lies at 19.37 and 20.01 cents per lb, respectively.

(By Commoditiescontrol Bureau: +91-22-40015505)

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