Mumbai (Commoditiescontrol): ICE sugar futures ended lower on the weekly basis despite higher crude oil prices.
The most active May raw sugar contract settled lower by 0.11 cents at 19.24 cents per lb, while the May white sugar contract settled lower $2.1 at $530.20 last trading session on Friday.
"Ethanol parity in sugar equivalent terms would move to around 20 c/lb if the (gasoline) price increase was passed on to ethanol in full, and that may well happen in the short term as ethanol market sentiment is definitely bullish," said an analyst.
The increase in gasoline prices in Brazil could result in a significant drop in the amount of sugar exported by the world's largest sugar exporter during the new crop season, which begins in April.
"The gasoline price rise will mean that ethanol prices rise too, providing a stronger bid for all that cane juice when Center-South Brazil's harvest kicks off next month. And it also validates the sugar market's move from lingering just below 18 cents up to over 19 cents this month," analyst said in a note.
As per the CFTC weekly report, ICE sugar managed money was 139,963 contracts net long on 8thMarch; up 80,476 contracts from the previous week. Long side positions increased by 37,387 contracts, while short side positions witnessed a fall of 43,090 contracts. Trade was 194,786 contracts net short; up 63,457 contracts from the previous week. Long side position increased by 9,653 contracts and short increased by 73,109 contracts. The open interest for the week was registered at 996,004 vs 939,038 contracts last week.
Bullish Factors
Higher crude oil prices bolster ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing to ethanol production than sugar, thus curbing sugar supplies.
Petrobras, Brazil's state-owned oil corporation, raised the price of gasoline distributed to distributors by 19 percent on Thursday, to 3.86 reais per litre from 3.25 reais.
The International Sugar Organization (ISO) recently cut its global 2021/22 sugar deficit estimate to -1.93 MMT from a November estimate of -2.55 MMT.
Reduced sugar output in Brazil is bullish for prices after Unica reported on Jan 12 that 2021/22 Center-South sugar production through Dec was 32.029 MMT, down 16.14 percent y/y.
In addition, the sugar content in the sugarcane crushed fell 1.55 y/y to 142.92 kg/ton from 145.17 kg/ton a year earlier.
Weather concerns in Brazil are a major bullish factor for sugar prices, with Brazil having experienced its worst drought in 100 years and as several bouts of frost in Brazil have damaged some sugar cane crops.
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. Conab projects Brazil's 2021/22 sugarcane crushing will fall to 525 MMT, down 13 percent y/y and the lowest in 10 years.
Bearish Factors
Larger sugar crop sizes in India and Thailand will offset reduced sugar production in Brazil.
The Indian Sugar Mills Association (ISMA) last Friday raised its India 2021/22 sugar production estimate to 33.3 MMT from a Jan estimate of 31.5 MMT, and said India's 2021/22 sugar exports will jump to a record 7.5 MMT. India is the world's second-largest sugar producer.
The Thailand Office of the Cane & Sugar Board reported Jan 10 that Thailand 2021/22 sugar production during Dec 7-Jan 6 rose 58 percent y/y to 1.9 MMT. Thailand is the world's second-largest sugar exporter.
Market are likely to remain strong as increase in price of diesel and gas will lift demand for ethanol which will shift Brazil sugar production to ethanol. Market ended lower for the week because of sharp correction in crude from upper levels and continuous supply from India which is likely to slow down now once market discounts these two factors market is likely to move up again. Immediate support and resistance for Sugar #11 lies at 18.71 and 19.55 cents per lb, respectively.
(By Commoditiescontrol Bureau: +91-22-9820130172)
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