MUMBAI – Sugar prices on the Intercontinental Exchange ended down led by the Brazilian real’s crash to multi-month lows against the US dollar despite rising expectations of a tightening deficit in 2019-20.
The most tracked, Sugar no 11 or the July contract fell 1.45% to 11.55 cents, levels last seen in September 2018 while the London August white sugar dropped 0.7% to $321.50 a tonne. Volumes in the July sugar no 11 contract eased to 61,085 compared with 80,397 a week ago. Volumes in Sugar no 5 stood at 6,135 compared with 7,654 a week ago.
Sugar prices started on a bullish note with short-covering amid the prolonged wet weather in Brazil. The country received shower spells earlier this week, which has cast doubts on the harvest of the cane crop. Untimely rains in April had already delayed cane harvesting.
Starting Tuesday, a number of consultancies and trading houses announced their forecasts for sugar which pointed at a deficit for the 2019-20 season in the range of 2 million-7 million tonnes, pushing up prices.
New York-based INT FCStone in its first estimate for the 2019-20 season projected a deficit of 5.7 million tonnes compared with a 0.3 million tonne deficit a year ago, led by the fall in outputs in Thailand and India. Sugar production during the year is seen falling 1.9% to 182.2 million tonnes.
Consultancy firm Datagro sees a sugar deficit of 2.34 million tonnes in 2019-20, compared with a 0.48 million-tonne surplus in 2018-19, as output from major Asian players such as India and Thailand is likely to fall, President Plinio Nastari said.
S&P Global Platts expects sugar supply deficit of 2.1 million tonnes in the 2019-20 season.
According to a Bloomberg report, the largest sugar trader Alvean’s Chief Executive Officer Paulo Roberto De Souza sees Brazil’s centre south region using only 33.5% of this year’s crop for to produce sugar, the least on record, while the deficit for the next season is seen at 7 million tonnes.
Paris-based leading commodities trader Sucden expected the sugar deficit at 2.5 million tonnes in 2019-20. However, large stockpiles from around the world could limit market gains, Sucden said.
In addition, estimates peg at higher production from Brazil in 2019-20, which could also limit gains.
Conab, Brazil’s state-owned commodity trading company, has pegged Brazil’s 2019-20 sugar production to climb by 17.4% on year to 34.1 million tonnes.
Last week, the UNICA data showed Brazil Center-South sugar production in 2019-20 dropped 32.7% in the second half of April to 1.035 million tonnes.
However, by the middle of the weak prices reversed gains as the market shifted their focus to the fall in the Brazilian real.
On Friday, the Brazilian real fell to a fresh over seven-month low of 4.11 per US dollar, prompting fund selling. The real has already weakened 3.6% this week owing to political uncertainties, and the delay in the pension reform bill being presented in the Congress. A weaker real leads Brazilian millers to increase sugar production to avail of the attractive exchange rate.
According to the CFTC data, managed money traders were net short 136,522 contracts as on the week ended May 14, adding net short positions by 34,155 contracts. Open interest for the week stood at 1,142,594 up 57,518 on week.
This week, the Brazilian real could be the key trigger to watch out for. If the slide in the real continues, prices may continue to ease as low as 11.25 cents unless crude prices rise sharply. As of now, all short-term technical indicators point to a weak real. The real is likely to face resistance around 4.12-4.15 levels.
Further, it may be noted that Indian Rupee which was firm against the US Dollar for some time has started declining against US dollar. A weak rupee and record India sock may accelerate India’s export and hence accelerate downtrend in global sugar prices.
For ICE July contract support is 11.45/lb cents and resistance is 11.60 cents/lb
(Commoditiescontrol Bureau)
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