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Weekly: NY Sugar Slips Sub-16 Cents as Fund-Buying Frenzy Pales

24 Jan 2021 6:27 pm
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Mumbai (Commodities Control) – Sugar #11 shed 4.8% for the truncated week-ended 22nd January, and ending sub-16 Cent level. This fall in the sweetener followed strong weekly gain in the previous week. NY Sugar posted a weekly rise of 5.45% between 11-15 January 2021, as ICE March’21 contract hit the highest level of 16.75 cents per lb.

Raw sugar futures on ICE fell on Friday, hitting their lowest in a week in a further retreat from last week's 3-1/2-year peak as risk-off sentiment in the wider financial markets reduced fund buying.

March raw sugar fell 1% to 15.87 cents per lb and during the session hit a one-week low of 15.80.March white sugar fell $5.50 to $444.80 a tonne.

Maxar said Friday that above-average rain is expected for the Center-South through next week, which should benefit sugarcane yields. Weakness in the Brazilian real against the dollar on Friday also weighed on sugar prices.

The real tumbled 2.05% to a 1-1/2 week low against the dollar Friday, which encourages export selling by Brazil's sugar producers.

Dealers said a fund-driven rally has faded, but there was unlikely to be a price collapse, with funds eager, on balance, to resume buying and the price retreat likely to inspire bargain-hunting by end-users.

Monday was a holiday on account of MLK day, while for the remaining trading sessions NY sugar continued to mostly go southward. The slide in sugar prices was a bout of profit-booking after it touched 3.5 years high in the prior week.

Meanwhile, dealers said a slowdown in demand from China after last year's buying spree and the prospect of a further build in stocks in India were among bearish factors. India is expected to produce surplus sugar for a fifth straight year in 2021/22 as farmers expand sugarcane acreage, encouraged by surplus rains and government-backed export incentives.

China imported 5.27 million tonnes of sugar in 2020, up 55.5% from a year earlier.

On the technical side, CFTC reports 2nd straight week of slide in the net longs for the week ended 19th january. Net longs dropped by 524 contracts to 219,307 contracts. This was the result of simultaneous drop on the longside and rise on the short side. The open interest was registered at 12,98,903 contracts, down 20,809 contracts.

Dealers observe that it is unlikely for sugar prices to rally back to the highs especially as the funds will need to concentrate on rolling their front month positions before too long. Also the attention will turn to the March expiry and to whether a large delivery will be seen.

Brokers said there was additional pressure from the fact that Indian mills were accepting smaller premiums to close export deals.

Having said so, the bullish factors are not all gone yet.

Citigroup last 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.

Section of the market sees ICE raw sugar futures rising to the 17-cent level, mostly due to financial factors such as inflation and currency fluctuations.

Smaller sugar output from Thailand is bullish for sugar prices. Data from the Thailand Office of the Cane & Sugar Board showed that Thailand's 2020/21 sugar production from Dec 10-Jan 14 was 2.1 MMT, down 43% y/y.

Also, Brazil's sugar production is projected to fall by 6% in the 2021-22 season to 36 million tonnes, Czarnikow said on Thursday.

For 2021, ratings agency Fitch said it expected prices to average about 13.50 cents.

Analysts note that in the near-to medium term, there is a possibility that sugar could retreat to around 15.70 cents to regain technical strength to move higher.

Should the trend remain bearish, then a three-tier support—beginning with 14.88 cents and going on to 15.02 and 15.25—is anticipated.

According to Anton Kolhanov of Kolhanov.com for the remainder of January 2021, ‘The uptrend may be expected to continue, while the market is trading above support level of 15.10 cents, which will be followed by reaching resistance level of 16.50. A downtrend will start as soon as the market drops below support level of 15.10 cents, which will be followed by moving down to support level 14.05 cents’.

For the moment, support and resistance for Sugar #11 lies at 15.41 cents and 16.34 cents per lb respectively.

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