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Weekly: ICE Sugar Ends Up On Lower Brazil Output Data; Ample Supply Limits Rise

28 Jul 2019 11:15 pm
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MUMBAI (Commoditiescontrol) – Sugar prices on the Intercontinental Exchange ended firm last week following lower-than-expected Brazilian output data and expectations of tighter supplies from India.

The most tracked, Sugar no 11 or the October contract ended up 3.7% to 12.02 cents, while the London October white sugar ended up 1.7% to $321.00 a tonne. Volumes in the sugar no 11 slipped to a two-month low of 26,025 compared with 60,027 a week ago. Volumes in Sugar no 5 too fell to a two-month low of 1,752 compared with 7,430 a week ago.

Prices see-sawed through the week, with the sugar no 11 recovering from a two-week low of 11.39 cents to a one week high of 12.23 cents.

Expectations of lower sugar production in the first 15 days of July started building up following a Bloomberg survey which detailed that UNICA, the Brazilian sugarcane association body may report a fall during the period by 8% on year to 41.5 million tonnes in the centre-south region. An S&P Global Platts survey too expected sugarcane crushing to fall by 7.3%.

On Wednesday, prices zoomed as UNICA reported sugar output from Brazil’s centre-south region fell by 19% in the first 15 days of July to 1.9 million tonnes. Data also showed that centre-south mills crushed 40.9 million metric tons of cane in the period, a decline of 9.5% on year. Millers diverted 36% of cane to sugar between July1-July 15, lower compared with 38.3% a year ago.

The cold weather and the frost-like conditions during the beginning of July in Brazil is likely to have hit sugarcane plantations in some areas to the tune of 400,000 hectares and thereby alter some harvesting plans and yields, UNICA said.

Cumulatively, cane crushing since the beginning of the season fell 4% to 258.1 million tons of cane. Sugar production was down 10.8% to 10.9 million tons.

Adding to the price rise was the Indian Cabinet’s approval to create a 4-million-tonne sugar buffer stock for a period of one year starting August 1. This move, aimed at reducing sugar inventories and stabilising local sugar prices, is seen tightening supplies in the global market.

The Indian Cabinet also kept the fair and remunerative price for sugarcane sold to mills unchanged from last year’s level of 275 rupees per quintal. The FRP is the minimum price that sugarcane farmers are legally guaranteed to get for selling cane to sugar mills.

Anticipating tighter supply conditions in the next few months, independent agricultural consultancy Datagro hiked its 2019-20 sugar deficit estimate to 6.42 million tonnes from the previous month’s estimate of 2.71 million tonnes amid unfavourable weather conditions in India, the EU, Australia, Pakistan, and Thailand. Meanwhile, the consultancy lowered its 2018-19 sugar surplus estimate to 140,000 tonnes from June's forecast of 1.0 million tonnes.

On Wednesday, the Indian Meteorological Department reported rains in the country were 35% below normal in the past week. Since June 1, the rainfall deficit now stands at 19%, raising concerns over summer-sown crops, thereby adding to the price rise.

Despite the bullish set of news, the huge short-term supply in the market provided some resistance to sugar prices at higher levels.

“Fundamentally, traders are deciding on the degree to which ample current supplies will impede tighter 2020 forecasts...In the end, there remains a consensus that the sugar mix in Brazil and Indian exports will be minimized at current levels,” said a report by Societe Generale.

Supply has been abundant, especially sugar from Thailand-based traders, following the delivery of the August London contract earlier this month.

An official from IMD also hinted at above-average rainfall in the next two weeks in India, which also provided some resistance.

In addition, data from China showed the country’s sugar imports in June were down 49% at 140,000 tonnes.

The latest CFTC data showed that managed money traders were net short 143,298 contracts as on the week ended July 23, adding 75,449 net short contracts on week, which could spur some short-covering in the near-term. Open interest for the week stood at 1,084,641, up 75,294 on week.

This week, prices may trade with an upward bias owing to concerns over the 2019-20 deficit. However, the near-term supply would continue to bog down prices at higher levels.

The weather conditions in Brazil which have turned dry and favourable for harvesting could also provide some resistance.

The immediate resistance for the October contract is seen at 12.11 cents, while the immediate support is seen at 11.93 cents.

(Commoditiescontrol Bureau)


       
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