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Weekly: Firm White Sugar, Weak Brazilian Real Keeps Raw Sugar Steady-To-Firm; Fund Buying Continues

2 Feb 2020 10:40 pm
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Mumbai (Commodities Control) – Raw Sugar was up 1.2% on weekly basis. On Friday, London sugar fell back from a fresh 2-1/2 year high due to supply tightness. However, an extremely large net-long position held by funds makes the London sugar futures vulnerable to long liquidation pressure.

Sugar prices rallied sharply over the past three weeks with NY sugar climbing to a 2-year high on Jan 23 on aggressive fund buying due to the outlook for smaller global sugar supplies.

On last day of the week, March raw sugar settled up 0.1%, or 2 cents, at $14.61 cents per lb, while March white sugar settled down $2.00, or 0.4%, to $406.20 a tonne, after climbing to a 2-1/2-year high of $416.50.

From the beginning of the week, Sugar #11 began to drift off its 2-year highs. Fear over the coronavirus outbreak in China hit energy prices and prompted expectations more sugar might be produced at the expense of biofuel ethanol. NY Sugar moved lower at a 2-week low and London sugar at a 1-week low. March raw sugar settled lower at 14.21 cents per lb. While Tuesday brought sugar back with its positive price trend. Sugar gained as much as 3% on Tuesday as the market's focus shifted to supply tightness, led by the absence of an export surge from India, drawing attention away from the corona virus that pulled prices lower on Monday. Strength in crude prices sparked short-covering in sugar futures. March raw sugar settled up 2.3%, or 33 cents, at $14.54 cents per lb.

However towards the second half of the week, Brazilian Real’s weakness started weighing on raw sugar’s price. The weaker real encourages export selling by Brazil's sugar producers. However firmness in White sugar did not let raw sugar fall further; marking a 10 cents higher closing at 14.59 cents/lb in Thursday’s session.

Dealers noted the market was supported by tightness in supplies of white sugar available to tender, with the front month due to expire on Feb. 14 and open interest still equating to more than 1.5 million tonnes.

March white sugar is traded at a premium of about $7.30 a tonne to May whites, which is in turn at a premium of around $8.00 to October whites.

"The London (whites) market is still buoyant and with 2020 in an inverse down the board plus an ever-strengthening whites premium seems to be leading NY (raws) upwards," Nick Penney, senior trader with Sucden Financial, said in a note.

However a bearish factor for sugar prices was Friday's plunge in the Brazilian Real to a record low of 4.28 Real/USD. The weaker Real encourages export selling by Brazil's sugar producers. Even crude oil on Friday fell more than 1.0% to a new 3.5 month low, which undercuts ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol production, thus boosting sugar supplies.

Meanwhile, the market continues to derive support from lower production in India and Thailand.

India's sugar production could fall nearly 18% in 2019/20 as a drought followed by floods is expected to curtail output in the country's second-biggest producing state, a trade body said on Friday.

Thailand's sugar production in 2019-20 is likely to fall 28% to 10.5 million tonnes from a year earlier, the lowest in nine years, as drought curtails cane production, the head of a leading trade body said on Friday.

Even Mexico's sugar production during Oct 1-Jan 25 fell 24.9% YoY to 1.375 MMT, according to Conadesuca.

Unica reported on Monday that Brazil's Center-South sugar production in the first half of January plunged 66.0% YoY to 4,000 MT versus 13,000 MT in the same period last year, although 2019/20 Center-South sugar production through mid-Jan rose marginally to 26.485 MMT.

According to market experts raw sugar futures are expected to rise a further 3% by the end of the year.

The latest CFTC data for the week ended 28th January showed that managed money traders’ continued to increase their Sugar #11 net long position. They added 24,085 contracts to their net long position to 1, 45,494 contracts. Open interest increased during the week by 63,298 contracts to 14,19,532 contracts.

While Friday's Commitment of Traders (COT) data showed that funds boosted their long London sugar positions by 3,367 contracts in the week ended Jan 28 to a record net-long position of 37,767 contracts (data from 2011).

Support and Resistance for Sugar #11 lies at 14.36 cents and 14.94 cents/lb respectively.

(Commodities Control Bureau)

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