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Weekly: Weak Crude, Real Drags ICE Raw Sugar Off 2-Yr Peak; Sucden Forecasts 15 Cents

27 Jan 2020 8:25 am
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Mumbai (Commodities Control) – Raw Sugar prices retreated on Friday and posted 1-week lows on weakness in crude oil prices and Brazilian Real. ICE Raw sugar drifted away from two-year peak after prices rallied sharply over the past three weeks, driven by fund buying.

March raw sugar settled down 1.24%, or 18 cents, to close at $14.39 cents per lb on Friday, retreating from Thursday's two-year high of 14.90 cents.

WTI crude fell to near 3- month low. Weaker crude prices undercut ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing to sugar production rather than ethanol production, this boosting sugar supplies.

A rally in the dollar index on Friday to a 1-1/2 month high also fueled long liquidation pressure in sugar futures. An extremely large net-long position held by funds makes the sugar market vulnerable to long liquidation pressure; evident in dip of net longs added for the week ended 21st January.

After an extended holiday on Monday due to MLK day, sugar on Tuesday touched a 2-year peak on technical buying and supply deficit. This was followed by Wednesday’s near 2-year peak owing to Fund Buying. Sucden Financial, here, noted that they see 15 cents very soon. However, general weak sentiment across global equities, commodities market and weak crude took the steam off sugar, as it settled at 14.57 cents/lb, on Thursday.

Despite the events of the week getting sugar futures slippery. The supply-side fundamentals continue to cushion sugar prices week-on-week.

India's Sugar Mills Association reported Jan 17 that sugar production in India, the world's second-largest sugar producer, dropped 26% y/y from Oct 1-Jan 15 to 10.89 MMT.

Unica last on Jan 14 reported that Brazil's Center-South sugar production in the second half of December plunged -82.4% y/y to 13,000 MT versus 73,000 MT in the same period last year, although 2019/20 Center-South sugar production through Dec rose +0.53% y/y to 26.481 MMT.

Recent data from Conab was supportive for sugar prices since it suggested tighter future sugar supplies. Conab on Dec 19 cut its Brazil 2019/20 sugar production estimate by 5.3% to 30.1 MMT from an Aug estimate of 31.8 MMT.

The Thai Sugar Millers Corp. is forecasting sugar production in Thailand will be less than 12 MMT this year, down more than 14% y/y from 14 MMT last year because of drought and low rainfall in Thailand's sugar-growing areas.

Meanwhile, Citigroup on Jan 10 raised its global 2019/20 sugar deficit estimate to 7.6 MMT from a previous estimate of 7.0 MMT as sugar crop risks persist in India and Thailand. Also, the USDA in its WASDE report (released Jan 10) cut its U.S. 2019/20 sugar production estimate by -1.5% to 8.158 MMT from a Dec estimate of 8.280 MMT.

The latest CFTC data showed that managed money traders’ continued to increase their net long position aggressively. They added 44333 contracts to their net long position to 1,21,409 contracts. Open interest increased during the week by 32174 contracts to 13,56,234 contracts.

Support and resistance for Sugar #11 lies at 14.02 cents and 14.88 cents/lb, respectively.

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