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Weekly: NY Sugar Settles Higher Tracking Firm Crude Oil, Real; Eyes on Ethanol Demand, Global Sugar Supplies

5 Jul 2020 5:12 pm
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Mumbai (Commodities Control) – Sugar prices on the Intercontinental Exchange ended 2.6% higher for the truncated week that ended on 2nd July, due to extended weekend in U.S. Sugar #11 ended 4.6% lower for the week ended 26th June.

During 29th June-2nd July, ICE raw sugar managed a northward rally on the back of strong crude oil and firm Brazilian Real, primarily.

On Thursday, NY sugar settled at 1-1/2 week high. NY sugar recovered from early losses on Thursday and matched Wednesday's 1-1/2 week high on strength in crude oil.

Crude oil rallied to a 1-week high Thursday, which benefits ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar production, which will curb sugar supplies.

October raw sugar settled up 0.07 cents, or 0.6%, at 12.24 cents per lb. August white sugar settled down $6.00, or 1.7%, at $350.30 a tonne, with the discount for August versus October sugar widening, meaning the recent supply tightness has all but disappeared.

Bullish Factors

Strength in broader markets lifted general sentiment across all the commodities. World stocks continued to rise through the week amid encouraging coronavirus vaccine trials and bets on a record rebound in U.S. jobs figures.

Sugar prices were underpinned during the week after Rabobank forecast that drought conditions in Thailand would cut its 2020/21 sugar output by 5% y/y to 8.15 MMT.

Sugar prices also saw support from crop concerns in India after a fresh swarm of locusts, last week, moved into Uttar Pradesh, India's biggest sugarcane growing region.

ISMA projected that India's 2020/21 sugar exports will jump to 7 MMT, up 25.7% from 5.2 MMT in 2019/20.

But there are a set of factors which experts believe are likely to keep a lid on price rise in raw sugar.

Bearish Fundamentals

Last week, raw sugar prices toppled due to ease in demand for White sugar and this is likely to keep price gains under check.

Dealers said that, given the situation in the whites market, there was little fundamental reason for raws to gain much more despite improved sentiment in the wider financial markets.

Also, there is growing concern that if the Brazilian ethanol market remained weak, the global sugar market could be flooded, which would plummet sugar prices.

In recent months, global demand for fuel has declined by an estimated 28%, which resulted in a sharp fall in ethanol production and subsequent widespread shutdowns of plants.

In Brazil, sugar production continued to increase, reaching a near-record 47% increase early in June, and according to the government crops supply agency, Conab, the country’s sugar production for the year was set to climb to 35.3 million tons, up from 29.8 million tons last season.

Sugar supplies are abundant after Unica reported that Brazil's Center-South sugar production in the first half of June rose 36.3% y/y to 2.55 MMT, with the percentage of cane used for sugar climbing to 47.11% in 2020/21 from 35.69% in 2019/20.

Unica also reported that total sales of ethanol by Brazil Center-South mills in the first half of June fell 11% y/y to 1.18 bln liters, which indicates pressure for less ethanol production and more sugar production.

Indian Sugar Mills Association (ISMA) said last week that India's 2020/21 sugar production would climb 17.7% y/y to 32.01 MMT. As on 3r July, GoI reported cane acreage at 5.1 million hectares that is 76,000 hectares more than last year.

Experts believe that the overall sugar demand picture is bearish for sugar prices. Czarnikow Group projects that with the closure of restaurants, sports arenas, and cinemas all over the world due to coronavirus lockdowns, global sugar demand will fall this year for the first time in four decades.

Having said so, the UN FAO’s monthly food price index, which tracks a basket of the most common foodstuffs such as grains, vegetable oils and meat, rose 2.4% in June to 93.2.

The rise halts four consecutive months of declining food prices, as measured by the FAO, that have come as supply has been slow to adjust to the pandemic’s sharp impact on demand.

The rise in the overall index has largely come from jumps in the price of sugar and vegetable oils. The FAO’s sugar price sub-index rose 10.6%, due to rising oil prices, which can incentivize Brazilian sugar mills to switch production from the sweetener to the biofuel ethanol.

Market will keep an eye on sugar supplies. There is plenty of Sugar for the world market, but getting the Sugar moved is becoming increasingly difficult with the widespread Coronavirus outbreak in both Brazil and India.

Experts see a mixed trend in NY sugar prices in the near term. Support and Resistance for Sugar #11 lies at 11.94 cents and 12.40 cents per lb respectively.

(Commodities Control Bureau)

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