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Weekly: Raw Sugar Consolidates Near 2-Yr Highs On Tight Global Supplies; Societe Gen Sees Prices Firm In 1H 2020

9 Feb 2020 7:54 pm
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Mumbai (Commodities Control) – Sugar #11 marks a 2.12% of weekly rise for the week ended 7th February. On Friday, March white sugar was up $8.70, or 2.1%, at $422.70 a tonne after touching a 2-1/2 year high of $424.20. While, March raw sugar upped 0.18 cents, or 1.22% to settle at 14.92 cents per lb, climbing back towards the two-year high of 15.13 cents set on Tuesday.

The latest bullish factor for sugar prices is a drought in Thailand, the world's fourth-biggest sugar producer. The Thailand Met Department says this year's drought in Thailand is the worst in 40 years. The Thai Sugar Millers Corp said on Friday that Thailand 2019/20 sugar production may drop 35% y/y to 9 MMT from 14 MMT in 2018/19 as dry conditions reduce sugarcane yields.

Poor crops in the European Union, India and the United States have helped to tighten supplies, as well, with the global market widely forecast to be in deficit in 2019/20.

Supply concerns got raw sugar hitting multiyear peaks from the beginning of the week, when March contract settled up 28 cents, at 14.89 cents per lb, having hit its highest since January 2018 at 15.01 cents. Mills in India reported an output of 14.1 million tonnes of sugar from Oct. 1 to Jan. 31, down nearly 24% from a year earlier because of limited cane supplies. However, raw sugar pulled back slightly from two-year high on Tuesday, closing 18 cents lower to close at $14.71 cents per lb, after reaching a two-year peak of 15.13 cents. Weakness in the Brazilian Real, which fell 0.25% on Tuesday, was a reason behind the pull-back. Raw sugar futures continued to ease on Wednesday after a Sucden Financial report said that Brazil can ramp up output and compensate for poor production elsewhere.

Meanwhile, Tropical Research Services estimated that 2019-20 CS Brazil sugar production increased by 3.5 mn MT TQ to 32.7 mn MT TQ. While the estimate of CS Brazil sugar production in the 2021-22 crop year has been upped by 0.9 mn MT, to 31.2 mn MT TQ.

By Thursday, raw sugar managed to consolidate around 2 year peak driven by falling production in key regions such as India, Thailand and the European Union, though the funds roll forward their nearby long positions. March raw sugar firmed 0.01 cents to close at 14.74 cents per lb.

During the week, India's Sugar Trade Association (ISMA) reported that sugar production in India, the world's second-largest sugar producer, dropped sharply by 24% y/y to 14.1 MMT during Oct 1-Jan 31.

While, sugar supplies from the EU are on the decline after the European Commission reported Monday that EU sugar exports during Oct 1-Jan 22 fell 62% y/y to a 3-year low of 291,000 MT.

Although, a negative for sugar was concern about increased Brazil sugar exports due to weakness in the Brazilian Real. The Real on Friday fell 0.75% and posted a new record low of 4.3225 Reals/USD. The weaker Real encourages export selling from Brazil's sugar producers and is therefore bearish for sugar prices.

Current sugar supplies coming out of Brazil are robust after Monday's data from Brazil's Trade Ministry showed Brazil January sugar exports jumped 48.5% YoY to 1.61 MMT.

Meanwhile, dealers said another leg higher looks possible for sugar as it continues to hold most of this year's gains.

Mexico’s Conadesuca crop report for the week ending 25th January 2020 indicated that cumulative sugar production in the 2019-20 crop year reached 1,375,000 MT TQ, or -24% lower compared with the same week a year before.

Guatemala’s Cengicana crop report indicated that cumulative sugar production in the 2019-20 crop year up to 26th January 2020 reached 1,256,000 MT TQ, or -2% less than in the same period a year ago.

Brazilian mills have fixed sugar prices for about 62% of estimated exports of 19.5 million tonnes between April 2020 and March 2021. That is well above a five-year average for the period of 40%, Archer Consulting said.

"(Brazilian) producers can obviously still hedge (sell) more but we suspect that selling faces growing inertia," said Commonwealth Bank of Australia in a note.

French sugar group Tereos said a rebound in sugar prices and strong ethanol demand should help boost its performance until the year-end. It posted improved third-quarter results, although its debt level continued to rise.

The United States has reallocated unused quota for importing raw sugar under a reduced tariff scheme, the office of the U.S. Trade Representative said on Thursday in a move to boost supplies after a poor crop.

Dealers said the open interest on the March contract was falling only slowly and there appeared to be plenty of interest in taking delivery given nearby supply tightness.

The latest CFTC data for the week ended 4th February showed that the net long for managed money traders’ stood at 135, 231 contracts, down 10,263 contracts from the previous week. Open interest increased during the week by 42,952 contracts to 14, 62,484 contracts.

Friday's Commitment of Traders (COT) data showed that funds boosted their long London sugar positions by 1,216 contracts in the week ended Feb 4 to a record net-long position of 38,963 contracts (data from 2011).

Societe Generale expects the front half of the year to remain tight, with the second half of the year part of a different conversation, if prices stay high long enough to affect significant increases in the Brazilian mix to sugar.

Support and Resistance for sugar #11 lies at 14.56 cents and 15.18 cents/lb, respectively.

(Commodities Control Bureau)


       
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