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Weekly: ICE Raw Sugar Makes A Comeback On Tighter Supplies, Weaker Real Key To Consolidation

23 Feb 2020 10:11 am
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Mumbai (Commodities Control) - Raw sugar futures on ICE closed over 2% higher, boosted by short-term supply tightness.

Sugar prices pushed higher Friday on U.S. sugar beet crop concerns after the American Sugar beet Growers Association said adverse weather may delay U.S. 2020/21 sugar beet plantings. The U.S. 2019/20 beet crop fell 9.3% y/y to a 9-year low of 8.158 MMT.

May Sugar #11 on Friday closed up 18 points or 1.2% higher at 15.12 cents/lb, while March raw sugar contract ended up 19 points or 1.23% at 15.59 cents/lb. May London white sugar ended up $3.20 or 0.88%.

For the week sugar #11, March contract, gained 2.84%, while May raw sugar contract upped 2.3% over the week.

Dealers said the market was supported by short-term supply tightness driven partly by poor crops in Thailand and India.

This was reflective through the truncated week; Shortened on account of President’s Day holiday on Monday, when on Raw sugar futures on ICE marched towards its 2 ½ Year highs on Tuesday.

On Tuesday, ISMA reported steep decline in sugar output by 23%, at 16.99 MMT during October1 – February 15, which took prices northward. March Contract upped 22 points and May contract ended higher by 32 points at 15.28 cents and 14.87 cents/lb, respectively.

This rally extended through Wednesday, after Thailand's Office of the Cane and Sugar Board reported that Thailand's sugar production from Dec 1-Feb 15 was 7.4 MMT, down 14.0% y/y. ICE March sugar futures headed up 30 points to settle at 15.58 cents, while May upped 21 points to close at 15.08 cents/lb. Wednesday's rally in crude oil prices to a 3-week high was bullish for sugar prices

A drought in Thailand, the world's fourth-biggest sugar producer, is slashing the country's sugar output. The Thailand Meteorological Department said this year's drought in Thailand is the worst in 40 years. The Thai Sugar Millers Corp said Feb 7 that Thailand's 2019/20 sugar production might drop 35% y/y to 9 MMT from 14 MMT in 2018/19 as dry conditions reduce sugarcane yields.

"There continues to be dry weather in India and Thailand, with rumours that the Thai cane crop will now be sub 80 million tonnes, down from 131 million tonnes last year. However, it does feel as though this figure keeps getting revised lower and lower," Sucden Financial broker Kim Dahan said in a note.

However, weakness in the Brazilian real on Thursday weighed on sugar prices as the Real fell against the dollar posting a new record low of 4.3969 Reals/USD. A weaker real encourages export selling by Brazil's sugar producers. March raw sugar settled down 18 cent, or 1.2%, at 15.40 cents per lb, having hit a 2-1/2 year high of 15.90 cents last week. Sugar #11 May contract ended down 14 cents or 0.93% at 14.94 cents.

Experts note that weak Real has, however, led to some consolidation during the last few days below a 2-1/2 year high of 15.90 cents set on Feb. 12.

"With (the Brazil real) collapsing, one would expect the sugar market to have a bearish sentiment, but this has not been the case as there is still a more bullish consensus," Dahan added.

Dealers said the expiry of the March contract at the end of next week was likely to provide a major short-term focus.

The open interest on the March contract has been falling sharply in the run-up to expiry and stood at 86,869 lots, as of Feb. 20, down 10,304 lots from a day earlier.

The latest CFTC data for the week ended 18th February showed that the net long for managed money traders’ stood at 166,397 contracts, up 17,610 contracts from the previous week. Open interest, however, tumbled during the week by 133,510 contracts to 14, 18,058 contracts.

Friday's Commitment of Traders (COT) data showed that funds boosted their long London sugar positions by 776 contracts in the week ended Feb 18 to a record net-long position of 40,828 contracts.

Support and Resistance for Sugar #11 lies at 14.77 cents and 15.33 cents/lb, respectively.

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