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Weekly: ICE Raw Sugar Sweetens amid Crop Concerns in India, Brazil, Speculative Buying ; Short Term Price Rise Seen

27 Sep 2020 4:31 pm
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Mumbai (Commodities Control) – Sugar #11, for October futures, settled nearly 2% higher for the week ended 25th September. During the week, sweetener was supported by crop concerns in India and Brazil - top sugar producers in the world, apart from the worries of weaker export incentives in India. Stronger crude oil and improvement in financial markets,additionally underpinned sugar prices.

Raw sugar prices closed up on Friday, in sight of this week's one-month high, with a lack of producers’ selling clearing the way for funds to push prices higher.

March raw sugar settled up 0.14 cent, or 1.0%, at 13.51 cents per lb, after setting a one-month high on Wednesday of 13.57 cents. For the week, the most-active contract ended close to 1% higher. The contract went as high as 13.57 cents per lb, between 21-25 September. December white sugar settled up $2.30, or 0.6%, at $376.50 a tonne.

Concerns about the sugar crop in Thailand, the world's second-biggest sugar exporter, pushed sugar prices higher on Friday. The Thailand Sugar Mills Corp. said on Friday that Thailand 2020-21 sugar production will fall 13% y/y to 11-year low of 7.2 MMT as dry weather this year ravaged cane plantations.

Another positive factor for sugar during the week was the action by the U.S. on Tuesday to raise Brazil's sugar export quotas to the U.S. by 80,000 MT to 310,000 MT.

Also, the USDA’s Foreign Agricultural Service (FAS) on Tuesday cut its Australia 2020-21 sugar production estimate to 4.3 MMT from an April forecast of 4.5 MMT and reduced Australia’s 2020-21 sugar export estimate to 3.40 MMT from an April forecast of 3.54 MMT.

However, the week started wobbly for ICE raw sugar, which was pressured on Monday from a slump in crude prices and on weakness in the Brazilian real. October raw sugar settled down 0.22 cent, or 1.7%, at 12.55 cents per lb, ending a four-session rally.

However sugar instantly shed its weakness Tuesday onwards, as dealers and analysts cited concern over crops in the two largest producers, India and Brazil, as well as doubts about Indian sugar export subsidies. The problem in India is excess rain, while the opposite is worrisome in Brazil.
British sugar trader Czarnikow warned about dryness and fires reported in Brazil cane areas that could hurt output.

Sugar analyst Matheus Costa at broker StoneX said the fires could hurt future production when occurring in fields already harvested and where cane was growing for the 2021 crop.
During the week, sugar price gains buckled under the strong dollar and fall in global shares. The coronavirus pandemic is seen cutting global sugar consumption by 2.5 million tonnes in the 2019-20 season (Oct-Sept), but a recovery is seen next season, analysts S&P Global Platts said on Friday.
Having said so, It expects prices to rise to around 14.5 cents per pound next year.
Meanwhile dealers said the market could see further strength in the short term, especially as producer selling has been limited, but the outlook for next season remains poor, with many expecting a surplus.

Marex Spectron analyst Robin Shaw said the market was focussed near term on adverse weather in regions including Centre-South Brazil, Europe and Russia, although overall market supplies are plentiful.

Having said so, technical charts cannot be ignored in case of a sugar price rally this week. For the week-ended 22nd September, speculators raised their net long position in raw sugar on ICE U.S. in the by 33,041 contracts for a total net long of 182,582 contracts. It is interesting to note that net longs have shot up after declining for two consecutive weeks. This has happened due to simultaneous addition to long positions along with reduced shorts. Open interest was registered at 11,08,012, up 5,862 contracts.

Through the week, a bearish factor lingered to slow sugar’s upward rally, by Rabobank, on Thursday to cut its global 2019-20 sugar deficit estimate to 1.0 MMT from a previous estimate of 4.3 MMT, citing a strong Brazil sugar harvest and an estimated 1.5% y/y drop in global sugar demand due to the Covid pandemic.

Rabobank also said it sees a "well supplied" sugar market in the coming year and forecasts a global 2020/21 sugar surplus of 0.2 MMT.

Indian Sugar/cane updates -
On Saturday, sugar prices remained steady across the markets but the traders expected an early announcement of a sugar package including hike in Minimum Selling Price (MSP). Few sugar mills have increased sugar prices hoping for a hike in MSP.
Sugar prices moved around its previous levels. In Delhi, M grade sugar traded at Rs. 3480-3560 per quintal. S-grade was sold at Rs. 3460-3550 per quintal. Similar trade was noted in all the mandis of the country.
According to GoI, the latest acreage update suggests cane acreage touched 52.84 Lakh hectares, up 1.83%.
Support and resistance for Sugar #11 lies at 13.32 cents and 13.64 cent per lb, respectively.

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