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Weekly: ICE Raw Sugar Loses Over 7% As Net Shorts Nearly Double W/W; Demand Concerns, Possible Sugar Surplus

5 Apr 2020 7:06 pm
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Mumbai (Commodities Control) – ICE raw sugar declined 79 cents for the week ended 3rd April. Through mid-week Sugar #11 had lost 105 points due to weak energy prices, record low Brazilian Real and a possible upswing in sugar surplus in the 2020/21 season. Only towards the end of the week raw sugar settled 26 points higher supported by rebound in crude oil prices.

According to the latest CFTC data for the week ended 31st March, this is the second week of buildup in net shorts. Managed money in Sugar #11 has nearly double its net shorts from past week to 14,482 contracts as compared with 7972 contracts in the previous week.

Speculative traders added 6510 contracts of net shorts for the week ended 31st March. Meanwhile, Open interest rose by 16,728 contracts at 12, 72,170 contracts.

Raw sugar futures settled marginally positive on Thursday and Friday, boosted by a surge in crude oil prices, with the market extending its rebound from a 1-1/2 year low set earlier in the week.

Crude oil prices jumped by more than 12%, as OPEC+ has scheduled a virtual meeting for Monday. According to an OPEC delegate, a global cut in crude production of 10 million bpd is a realistic goal.

On Friday, May raw sugar closed up 0.02 cents, or 0.19%, to 10.31 cents per lb. Dealers said a rebound in energy markets could lessen the incentive for mills in Brazil to switch to using more cane to make sugar rather than biofuel ethanol, though a shift to increased production of the sweetener was still expected.

However persistent weakness in the Brazilian real against the dollar is a problem for sugar prices. The Real on Friday fell 1.18% against the dollar and posted a new record low of 5.3225 reals/USD.

Market this week was pressured, also, by the prospect of more output in Centre-South Brazil as the slump in energy prices prompt mills to use more cane to produce the sweetener rather than biofuel ethanol.

On Monday, Brazil ethanol prices dipped to a 1-1/2 year low of 1.5137 reals/liter.

Through the week, there is a concern about increased sugar supplies. The plunge in crude oil prices to an 18-year low in the first part of the week encouraged Brazil's sugar mills to divert more cane crushing toward sugar production rather than ethanol production, thus boosting sugar supplies.

It was 'double whammy' for sugar prices with fear of lower global demand and higher production from Brazil hammering chances of another deficit in 2020/21.

It is only when Crude futures jumped 20%, heading away from Wednesday's near 18-year lows that sliding raw sugar prices could slow down and settle positive for last two days of the week.

U.S. President Donald Trump said he expected Saudi Arabia and Russia to reach a deal to end their price war. The surge in crude oil sparked short-covering in sugar futures.

During the week, Sugar prices were also undercut when the CEO of the world's top sugar trader Alvean said that Brazil's Center-South sugar production for 2020/21 (Apr-Mar) may approach the record 36.06 MMT.

Amid all the weak cues, however, one positive factor for sugar is the concern about supply disruptions in India.

Indian Sugar Exim Corp said on Mar 27 that India will miss its sugar export target this year of 5 MMT since the coronavirus pandemic is causing a shortage of labor at ports and sugar mills. Several ports and terminals in India have declared force majeure due to shutdowns from the coronavirus pandemic.

Indian Sugar Mills Association (ISMA) last week said that India's cane crushing may be affected during the 3-week long lockdown imposed by the Indian government. ISMA reported that sugar production in India, dropped sharply by 22% y/y to 23.27 MMT during October-March.

Support and Resistance for Sugar #11 lies at 9.98 cents and 10.84 cents per lb, respectively.

(Commodities Control Bureau)

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