Mumbai (Commodities Control) – The northward rally in NY Sugar came to a screeching halt for the week ended 30th October, as the March’21 futures on ICE shed 2.45% for the week.
ICE raw sugar had witnessed six consecutive weekly gains until 23rd October, primarily driven by fund buying against a backdrop of uncertainty about the extent to which India might subsidise exports in the current season.
As anticipated in the previous weekly report, Sugar #11 did move past 15 cents per lb during 26-30 October.
The week started on a positive note for ICE sugar as it rallied to eight month highs of 15.04 cents per lb on Tuesday. The only underpinning factor was the market keenly awaiting India’s announcement on its sugar export policy.
Dealers were hoping for further price rise during the week, betting that although India will probably sanction 6 million tonnes of sugar exports, the export subsidy is likely to be lower.
However, weakness in other commodity markets due to demand concerns in the backdrop of escalating Covid infections, weak crude and falling Brazilian Real dragged the sweetener from its multi-month top.
Raw sugar futures on ICE closed down on Friday in a choppy session with prices falling amid some fund long liquidation triggered by deepening gloom across financial markets as COVID-19 infections climbed.
Continued weakness in crude oil prices on Friday, along with a slump in the Brazilian real, undercut sugar prices. Crude oil on Friday fell by more than 1% and traded close to 4-1/2 month low. The Brazilian real fell to a fresh 5-1/4 month low against the dollar Friday. The weaker real encourages export selling by Brazil's sugar producers.
March raw sugar settled down 0.04 cent, or 0.3%, at 14.36 cents per lb, extending its decline from Tuesday's eight-month peak of 15.04 cents. December white sugar settled up $3.90, or 1.0%, at $390.50 a tonne.
Dealers said funds were scaling back part of a large net long position, with risk appetite diminishing against the backdrop of an increasingly gloomy economic outlook.
"Investors’ changed perspective on markets generally might prove to be the thing that stalls the sugar rally," Commonwealth Bank of Australia analyst Tobin Gorey said in a note.
However technically, for the week ended 27th October the managed money’s net longs rose by 8,494 contracts, for a total net long of 263,050 contracts. It is interesting to note that net longs shot up for the sixth straight week by nearly 8,000 contracts to the long side at 290,856. Open interest was registered at 12, 06, 727, up 39,075 contracts.
Dealers said there were renewed concerns about demand, particularly in Europe. Lockdowns across the globe earlier this year curtailed sugar consumption. They also said funds are probably liquidating some of their large long position ahead of the U.S. elections.
"It is part of a general risk off by the money guys especially with the new lockdowns. Oil also is not looking great," said a U.S.-based broker.
French sugar maker Tereos believes that a large part of high sugar stocks in Brazilian warehouses has already been sold and would be shipped soon.
Tuesday's projection from Grupo Tereos for Brazil's 2020/21 sugar exports to jump 59% to a record 30 MMT is also a negative for sugar.
On the Indian side, meanwhile, spot sugar prices improved recently in western and southern markets after a steady price trend for more than two weeks. According to the traders, sugar demand improved, supporting price rise in the Southern region. However, a muted trend persisted in the Northern and eastern market.
Millers were trying to get deals for next month. Strong festival demand underpinned price rise after nearly two weeks.
Meanwhile, the Indian government has fixed the sugar quota of 22.5 Lakh tonnes for November 2020, vs 21.5 Lakh tonnes for November 2019. Quota has been raised by one lakh tonne, keeping the festival demand in mind.
As Per Government notification, the sugar mills are allowed to sell sugar in accordance with their respective quota. For the on-going month, i.e, October 2020 the quota was set at 23 lk tonnes, while it was 22 lk tonnes for September 2020.
It is to be noted that despite the festive season in India, the domestic demand is half of what it was last year. Although North Indian and Uttar Pradesh sugar mills have, reportedly, sold off their entire quota sugar in the previous month.
Support and Resistance for Sugar #11 lies at 14.05 cents and 14.55 cents per lb, respectively
(Commodities Control Bureau)
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