Mumbai, 15 Jul (Commoditiescontrol): It was another week of adding positive momentum for the sugar, with gains to record in price. That's been the story of late for the natural sweetener, except for immediately the previous week when it clocked first drop.
In recent time, Sugar prices have built on supply crunch prospect in the growing regions, particularly Asia, Latin America and Europe. That factor is back in play this week, with below or sub-normal rainfall observed in India's western region, Thailand and the Euro region experiencing hottest days.
Apparently, ICE Raw Sugar prices closed higher on Friday, extending their recent gains, led by fewer availability and the dry weather conditions are fueling supply fears.
ICE sugar futures for October delivery settled up 0.31 cent, or 1.3%, at 24.32 cents per lb. The contract posted a weekly gain of about 3.4%.
London August white sugar futures, which expired Friday, rose $7.10, or 1%, at $700.70 per metric ton. The open interest on the August contract has been falling steadily in the run-up to expiry and stood at 3,464 lots, as of July 13, equating to 173,200 metric tonnes of sugar.
Dealers said the market continues to consolidate, trading in a recent narrow range, while noting that the El Nino weather event could curb production in India and Thailand.
Extending support is the recent rally in WTI crude oil. Higher crude prices benefit ethanol and is likely to prompt the world's sugar mills to divert their cane crush toward ethanol production rather than sugar, thus reducing sugar supplies.
Some interesting data points are emerging from the Latin America region. Brazil's center-south sugar production rose 7.6% in the second half of June when compared with a year earlier to 2.7 million metric tons, industry group UNICA said on Tuesday. Yet, the data was below market expectations for 2.88 million tons production, with sugarcane crush also less than expected.
Drier conditions in Brazil have sped up Brazil's sugar harvest and are weighing on prices, dealers said. The improving weather conditions in Brazil have also prompted sugar trader Czarnikow to raise its 2023 Center-South sugar production forecast by 500,000 MT to 38.2 MMT. Relatively high prices have prompted mills in Brazil to favour using cane to produce sugar rather than biofuel ethanol.
Dealers said lower-than-expected production in Brazil was helping to underpin the market. There was also talk about poor conditions for the Thai crop. Going forward the prices are likely to trend lower, they added.
Interestingly, the strength of the Brazilian harvest could begin to weigh on prices as data shows a sharp upturn in average yields in the world’s top producer. Brazil's sugar cane crushing for the 2023/24 season is expected to increase to 606.5 million metric tons from 598.50 million metric tons previously estimated, consultancy Datagro said recently, as the cane fields are favoured by steady rainfall.
In Asia, the El Nino effect is currently reflecting in growing supply crunch. Sugarcane growers in India's top producing states are worried scanty rainfall during the crop's crucial growth period could trim yields and reduce sugar output in the upcoming season. Similarly, the rainfall so far this year in Thailand is 28% below the same period last year, and the onset of the El Nino weather system could lower precipitation even further over the next two years. As per the Czarnikow Group, Thai sugar production this year could is likely to fall for the first time in three years and may drop to the second lowest since 2009/10.
Indonesia, one of the world's top sugar importers, said it wants to raise white sugar output to 2.6 million tonnes this year, and expects imports to fall below 1 million tonnes.
For European Union, Suedzucker expects the region to remain a net sugar importer this year, with global prices expected to remain high. Given this "continued positive market environment", Suedzucker said it expects to achieve continued high sugar prices in the EU.
Speculators reduced their bullish bets in futures of raw sugar on ICE U.S. in the week to July 3, data from the Commodity Futures Trading Commission (CFTC) showed on Friday. Funds cut 23,171 contracts from their net long position in raw sugar, taking it to 89,779 lots in the period.
We continue to hold positive view on the sugar. This was broadly based on the weather conditions which would determine global sugar. The forecast suggested global supplies may be stressed from the hot climate, which could ultimately lead to the strengthening of prices. However, for now, the weather conditions are turning favourable for crop. Also, the Brazilian sugar harvest is undercutting the price forecast.
For Monday, support for the July Sugar contract is at 24.09 cents and 23.85 cents, with resistance at 24.48 cents and 24.63 cents.
(By Commoditiescontrol Bureau: 09820130172)
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