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Weekly: NY Sugar Rallies Forward on Tight Global Supplies, Fund Buying; Market Eyes 18 C

17 Jan 2021 8:07 pm
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Mumbai Commodities Control - NY Sugar may have ended in red on Friday, however the sweetener rallied strongly through the week to post a weekly rise of 5.45%. Between 11-15 January 2021, ICE March’21 contract hit the highest level of 16.75 cents per lb.


In the previous week, NY Sugar peaked at 16.32 cents per lb, and pared gains thereafter. It is to be noted that sugar prices have been rallying northward for the past four weeks.


Expectation of global supply tightness continued to drive fund-buying in raw sugar through the week.


Having said so, sugar prices on Friday settled lower as a rally in the dollar index to a 3-1/2 week high and a 2% plunge in crude oil prices sparked long liquidation pressure in sugar futures.


March raw sugar fell 1.3% to 16.46 cents per lb, having hit its highest in more than 3-1/2 years in the prior session at 16.75 cents on concerns over nearby supply tightness.March white sugar fell 0.5% to $462.10 a tonne amid an absence of selling from Thailand and the EU, and reports of global container shortages.


Sharp surge in prices was witnessed on Wednesday, as raw sugar gained 2.4%, after Unica reported that Brazil Center-South sugar production in the second half of December fell 13.7% y/y to 11,000 MT.


Meanwhile Citigroup on Thursday raised its 2021 sugar price estimate to 14.7 cents/lb from 13.6 cents/lb, citing "disappointment in the scale" of the government of India's subsidy for sugar exports.


Recent strength in crude oil prices benefits ethanol prices and is bullish for sugar prices.


Higher crude oil prices encourage Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar production, thus curbing sugar supplies.


There is market talk of continuous buying from top consumer Indonesia, while funds, betting on a global economic recovery this year, remain keen on commodities.


"While the price overshoot could last for the March expiry, we do not believe current levels will persist over the medium-term," said Citi in a note.


"Cash-strapped Indian mills are in a rush to sell more sugar to capture the high prices ... and could use up the 6 million tonne export quota if high prices persist," it added.


Smaller sugar output from Thailand, the world's second-largest sugar exporter, is bullish for sugar prices.


Tuesday's data from the Thailand Office of the Cane & Sugar Board showed that Thailand's sugar production for the first month of the 2020/21 sugar season from Dec 10-Jan 7 was 1.3 MMT, down 54% y/y.


Also, the Thai Sugar Millers Corp reported last Friday that Thailand's cane output in the first month of the 2020/21 crushing season through January 6 was 11.96 MT, down 45.6% from the same time last year.


On the technical side, CFTC reports slight ease in the net longs for the week ended 12th january after two consecutive weeks of rise. Net longs dropped by 9,791 contracts to 219,831 contracts. This was the result of simultaneous drop on the longside and rise on the short side. The open interest was registered at 12,78,094 contracts, down 931 contracts.


Meanwhile brokers are of the opinion that the performance of late could be showing a top, but the specs might be reluctant to exit yet.


We have been constantly highlighting in our prior weekly sugar reports as well, Sugar #11, having breezed past 16.50 cents per lb this week, has a technical potential to rise to 18 cents.


Immediate support and resistance for Sugar #11 lies at 15.80 cents and 17.12 cents per lb, respectively.


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