Mumbai, 29 APR (Commoditiescontrol): Sugar is in sweet spot. The sweetener continues to benefit from favourable underlying fundamentals as well as generating technical support once piercing the key resistance level. However, the experts are cautioning against raising bets given the lofty prices and far fetched expectations.
On Friday, ICE raw sugar future settled marginally up, after having re-set a fresh 11-1/2 years peak in the previous session. Supply concerns are the main highlight of recent rally that found support from rains in Brazil. Also, the May sugar contract expiry led to short covering.
With limited physical sugar supplies available in the cash market for futures deliveries, traders are being forced to pay up to cover short sugar futures positions.
ICE May raw sugar was little changed as it expired on Friday at 26.99 cents per lb. The contract gained 8.7% in the week. August London white sugar lost $8.50 or 1.2%, at $711.60 a tonne.
Dealers said the market is due for a correction near-term given the overall negative macro-economic environment for commodities.
Bullish factors....
Sugar has been boosted of late by lower than expected output in India, Thailand, China and the European Union, while the upcoming harvest in top producer Brazil has been slowed by rains.
Lower output forecast has help fuelled the rally as well. Producers and experts have reduced by 10% their output expectations for the current sugar harvest in Mexico following a months-long drought.
Another industry group Unica reported on Thursday that sugar production in Brazil's key centre-south region totalled a lower-than-expected 542,000 tonnes during the first half of April. The survey by S&P Global Commodity Insights showed expectations for sugar production at 560,000 tonnes.
There was also chatting about a possible new restriction on Indian sugar imports, with no confirmation.
Dealers cited the potential for an El Nino sugar event to curb future production in Asia and ongoing concerns about low output in the European Union as supportive factors.
India's Food Secretary said India might not allow additional sugar exports this year due to lower-than-expected sugar production. India has allowed only 6 MMT of sugar exports in 2022/23 after permitting 11.2 MMT in 2021/22, down 46% on year. Also, the Indian Sugar Mills Association (ISMA) reported India's Oct-Mar sugar production fell 3.3% on year to 29.96 MMT. India is the world's second-largest sugar producer.
The European Union expects a decline in production to lead to a rise in imports and a fall in the planted area for the 2023/24 season.
Fitch Solutions said, "Downgraded harvest expectations in Brazil, India and Europe are driving supply concerns, while prices are also being supported by the continued diversion of sugarcane towards ethanol production in India."
The USDA cut its view for China's sugar production by 1 million tonnes due to bad weather, while the Brazilian government released data saying the sugarcane area fell in 2023 to the smallest in 12 years as farmers switch to grains.
Funds seem happy to hold on to their long position but are reluctant to increase it significantly. The speculators have raised their bullish bets in futures of raw sugar on ICE U.S. in the week to April 25, data from the Commodity Futures Trading Commission (CFTC) showed on Friday. Funds added 4,818 contracts to their net long position in raw sugar, taking it to 162,565 lots in the period.
The El Nino weather event which could potentially reduce 2023/24 output in Asia where it can result in drier-than-normal weather, as well as worries regarding April rains in Brazil that could disrupt harvesting.
Bearish factors....
Few bearish factors were at play. But they may turn out to be a short-term in nature. Topping the list is: the higher Brazil's sugar output that sparked long liquidation pressures in sugar futures. Unica reported that Brazil's 2022/23 sugar production from Oct through March rose 5.2% on year to 33.728 MMT.
Meanwhile, the Chinese trader COFCO delivered 900,000 tonnes of raw sugar to ICE on the expiry of the May contract, with almost all of the volume delivered.
Given the long list of bullish factors, way should avoid betting on price slide, especially when speculators are on hunt to squeeze out shorts amid more price-positive news. There are few who have admitted to be surprised with the strength of the upside. In such a scenario demands for staying cautious and waiting for the right opportunity.
For Monday, support for the May Sugar contract is at 26.04 cents and 25.73 cents, with resistance at 26.58 cents and 26.81 cents.
(By Commoditiescontrol Bureau: 09820130172)
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