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Weekly ICE Sugar: Ends Up On Crude Oil Price Rise, Deficit Expectations

23 Sep 2019 7:30 am
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MUMBAI – Sugar prices on the Intercontinental Exchange ended higher last week after see-sawing in volatile trade led by the rise in global crude oil prices and expectations of tightening sugar supply. However, the sharp fall in the Brazilian real against the US dollar provided some resistance to the upward momentum in sugar.

The most tracked, Sugar no 11 or the October contract ended up 1.8% at 11.09 cents, while the London December white sugar ended up 2.8% at $325.70 a tonne. Volumes in the sugar no 11 slipped to 67,573 compared with 134,359 a week ago. Volumes in Sugar no 5 stood also declined to 7,333 compared with 13,479 a week ago.

Sugar prices spiked up sharply at the beginning of the week led by the record 15% jump in crude oil prices following a drone attack on a Saudi Arabian oil facility which is said to have halved the production of oil in the county. There were also reports of the US ready to retaliate with Iran, considered prime suspect behind the attack.

However, prices soon retracted the following day as crude oil prices fell on reports that Saudi Arabia has already restored nearly 70% of its oil production lost in the drone attack and could return to full production in the next two to three weeks.

The WTI October crude oil prices jumped 15% on Monday and by Tuesday fell as much as over 5%. For the week, crude oil prices gained 5.9% at $58.09 a barrel.

By mid-week, sugar prices focused back on fundamentals with contrasting forces at play. Expectations of huge deliveries against the October contract expiry loomed on the New York raw sugar contract on one hand and 2019-20 deficit expectations pulled up the London white sugar contract.

Agricultural business consultancy Agroconsult said it expected Brazilian exports in 2019-20 to fall 10% to 18 million tonnes, while the global sugar deficit was pegged at 2.3 million tonnes. Sugar and ethanol producer Biosev said it expected 2019-20 Brazilian sugar output at 25.9 million tonnes compared with 26.5 million a year ago. Commodity traders Bunge also expect sugar production from Brazil's Centre-South to be about 26.6 million tonnes in 2019-20. Bunge also sees Brazilian mills allocating 34.7% of cane to sugar production in 2019-20 versus 35.2% in the previous season. Thursday, researcher JOB Economia e Planejamento scaled-down Brazil's 2019-20 sugar production estimate to 25.7 million tonnes from 27.8 million tonnes estimated earlier. The group also projected Brazil’s 2019-20 sugar exports to slip to a 12-year low of 18.5 million tonnes.

By Thursday, however, prices turned bearish on the sharp fall in the Brazilian real. The Brazilian real fell by 1.4% in intraday trade on Thursday to end at a two-week low of 4.17 per dollar. The real weakened as the central bank slashed the benchmark Selic rate by 50 basis points to an all-time low of 5.50%. The central bank cited low inflation and uncertain global conditions for the rate reductions. During the week, the real declined by 1.5%.

A weak real prompts Brazilian millers to opt for sugar production rather than ethanol.

But, prices bounced back on Friday on views that the Brazilian sugarcane association UNICA could announce a lower sugar production number for the first half of September next week. According to some reports, output for the period is seen falling 4% to 2.1 million tonnes.

In the second half of August, UNICA data showed sugar production increased by 5.5% on year to 2.5 million tonnes. However, cumulative sugar production until August for the season was down 4.8% to around 18.0 million tonnes.

Last month, UNICA said it expects Brazil’s centre-south sugar production in 2019-20 to fall by 5.7% to a 14-year low of 25 million tonnes on increased ethanol output in Brazil.

The latest CFTC data showed that managed money traders’ net short positions widened further to 234,839 as on the week ended September 17, adding 21,235 net short positions on week. Open interest for the week stood at 1,099,719, down 135,326 on week.

This week, the October contract may pull down the other sugar contracts as it heads into expiry and the market seems flushed with near-term supplies. The deficit expectations for 2091-20 may continue to offer ample support to the contract around 10.90-11.00 cent levels. Meanwhile, the March 2020 contract is seen moving in the 11.99-12.12 cents range.

(Commoditiescontrol Bureau)

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