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Weekly: ICE Sugar Slips Under Liquidation Pressure; Mkt Sees Consolidation In Near Term

16 Feb 2020 11:56 pm
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Mumbai (Commodities Control) - Sugar #11 active May contract, dipped nearly a percent or 14 points over the week, while March contract managed positive closing at 0.94%. The market was generally positive through the week, with a deteriorating crop outlook in major exporter Thailand reinforcing concerns about tightening supplies.

However sugar prices suffered loses in the later past of the week on long liquidation pressure from commodity funds, after having rallied sharply over the past month to a 2 ¾ year high on Wednesday on concerns pertaining to future global supplies.

Previous week marked a 2.12% weekly rise for the week ended 7th February.

An extremely large net-long position held by funds makes the sugar futures markets vulnerable to long liquidation pressure.

May NY world sugar #11 on Friday closed down 23 cents to settle at 14.55 cents/lb, and May London white sugar #5 closed down 6.00 or 1.43%.

Beginning of the week was on a sweet note as ICE raw sugar futures zoomed past 15 cents. On Monday white sugar set a 2-1/2 year peak, boosted by talk of supply tightness at a key industry conference in Dubai. March raw sugar settled up 0.8%, at 15.04 cents per lb, climbing back toward the two-year high of 15.13 cents set last week.

Sugar prices rallied Monday after Green Pool Commodity Researchers, on the sidelines of Dubai conference, raised their global 2020/21 sugar deficit estimate to 3.8 MMT from a previous forecast of 1.0 MMT. Chinese commodities trader COFCO said in Dubai Conference that it does not expect recovery in Thailand's sugar crop any time soon, with production in 2019/20 likely to fall 28% to a nine-year low of 10.5 million tonnes.

Dealers said while there was some concern because of macro factors such as the corona virus outbreak - the market did enjoy the conference bounce.

Monday’s euphoria was passed to Tuesday as well. Raw sugar futures on ICE rose to their highest level in more than two years on Tuesday as diminishing production in Thailand helped to tighten supplies. March raw sugar settled upped 37 points at 15.41 cents per lb, while March white sugar was up $2.90 at $432.80 a tonne after climbing to a 2-1/2 year high of $433.60.

A Commonwealth Bank Analyst noted, "A short while ago many were worried that sugar prices had rallied to levels that would pay extra sugar production that was not needed. Now, with the need to replace the missing sugar from Thailand, that is apparently no longer the case".

Meanwhile on Tuesday ISMA said, India's sugar output in 2019/20 could fall 21.6% to 26 million tonnes, the lowest level in three years, after drought in 2018 forced farmers to curb cane planting and flooding damaged crops in key growing regions in 2019.The trade body is meeting on February 25th to revisit its estimate, however, don’t expect any upward revision from 26 mn tonnes.

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

The bullish trend was carried through the mid-week, as Indonesia Sugar Association said that Indonesia's white sugar output is seen between 2 - 2.1 million tonnes this year, down about a tenth from last year on drought in previous years.

Raw and white sugar futures on ICE scaled 2-1/2-year peaks on Wednesday as deficit forecasts for 2019/20 were revised higher on falling production, most recently in Thailand. March raw sugar settled up 2.4%, at 15.78 cents per lb after setting a 2-1/2-year high of 15.90 cents.

The recent rally in sugar prices is likely to prompt increased sugar exports from India after the ISMA said on Tuesday that India's sugar mills have already contracted 3.0 MMT to 3.5 MMT of sugar for export this year, but the recent surge in prices "makes Indian sugar exports more attractive for Indian sugar producers" who may boost their sugar exports to 5.0 MMT this year.

Come Thursday and the rally took a break. ICE raw sugar futures fell slipping back slightly from the prior session's 2-1/2 year high, weakened partly by expectations the recent run-up in prices could boost production in Center-South Brazil. Prices also fell on long liquidation pressure from commodity funds. March raw sugar settled down 4%, at 15.16 cents per lb. While the active contract, May Contract, closed at 14.78 cents/lb, down 1.86%.

Meanwhile, Unica on Wednesday reported that Brazil's 2019/20 Center-South sugar production Oct-Jan rose 0.48% y/y to 26.485 MMT with the percentage of sugar cane crushed for sugar falling to 34.50% from 35.44% last year.

Dealers said the market may need to consolidate in the short term following its recent strong advance while there could also be some profit-taking in the run-up to the long holiday weekend. U.S. markets will be closed on Monday for Presidents Day.

The latest CFTC data for the week ended 11th February showed that the net long for managed money traders’ stood at 148, 787 contracts, up 13,556 contracts from the previous week. Open interest increased during the week by 89,083 contracts to 15, 51,567 contracts.

Friday's Commitment of Traders (COT) data showed that funds boosted their long London sugar positions by 1,069 contracts in the week ended Feb 11 to a record net-long position of 40,052 contracts (data from 2011).

Support and Resistance for Sugar #11 lies at 14.05 cents and 15.05 cents/lb, respectively.

(Commodities Control Bureau)

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