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Weekly: ICE Sugar Ends Down As Weak Brazilian Real, Crude Oil Prices Weigh

25 Aug 2019 7:21 pm
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MUMBAI – Sugar prices on the Intercontinental Exchange ended down last week because of the persistent fall in the Brazilian real in addition to the weak crude oil prices. The higher fortnightly sugar output data from Brazil detailed in the latter part of the week also led to a fall in prices.

The most tracked, Sugar no 11 or the October contract ended down 1.5% at 11.47 cents, while the London October white sugar ended down 1.2% to $310.40 a tonne. Volumes in the sugar no 11 rose to 33,874 compared with 23,275 a week ago. Volumes in Sugar no 5 stood at 2,620 compared with 2,787 a week ago.

Prices started on a soft note on Monday as the Brazilian real continued to stay weak below the 4 per dollar mark. The real ended the week by hitting an 11-month low of 4.13 Friday, making it one of the worst-performing currencies. During the week, the real slipped nearly 3% against the US dollar.

A weak real typically prompts Brazilian millers to divert their cane crushes for more sugar production so they can avail of the attractive exchange rate.

The fall in crude oil prices added to the weakness in sugar prices. The WTI October crude oil contract fell 1.3% during the week, hitting a two-week low of $53.24 a barrel on Friday. Oil prices have been subdued owing to the higher-than-expected rise in gasoline stocks during the week, in addition to worries about global demand in the wake of the trade tensions between the US and China.

Mid-week, some news reports also cited ample near-term supply in the market for the fall in prices. Expectations that the Indian government may extend the sugar subsidy plan also helped prices lower.

Such expectations gained ground a few days ago after a news report quoted anonymous sources saying the Indian government is likely to seek Cabinet approval for subsidising export of up to 6 million tonnes of sugar in 2019-20 to help clear the surplus in the domestic market and support domestic prices.

Meanwhile, the healthy rainfall progress in India has also been adding to the bearish trend in the market.

Rains in India was above-average for the fourth straight week up to August 21, according to data released by the Indian Meteorological Department. India received 10% more rainfall than the 50-year average during the week, pushing overall rainfall into an excess of 2% for the entire season.

The sharp pick-up in rains has led to expectations of a healthy crop in the coming season.

Earlier this week, leading global commodity broker Marex Spectron raised India’s 2019-20 sugar production estimates to 30 million tonnes, 6% higher than the Indian Sugar Mills Association’s estimate of 28.2 million tonnes. The brokerage cited favourable weather as one of the major reasons for the rise.

On Thursday, prices recouped some of their losses after the Brazilian statistical agency Conab revised its production estimate for Brazil’s centre-south sugar production lower. Conab cut Brazil’s 2019-20 sugar production estimate by 6.7% to 31.8 million tonnes from its May estimate of 34.1 million tonnes.

However by Friday prices were back on the downtrend as the Brazilian sugarcane industry association released the cane crushing data which showed sugar production in Brazil’s centre-south region in the first half of August rose by 24.3% on year to 2.13 million tonnes. However, sugar output so far in the 2019-20 year fell 6.3% on year to 15.46 million tonnes.

With the bearish factors, the latest CFTC data showed that managed money traders’ net short widened to 155,850 positions as on the week ended August 20, adding 2,565 net short positions on week. Open interest for the week stood at 1,183,020, down 6,725 on week.

Unless the Brazilian real shows some signs of recovery this week, sugar prices are unlikely to show a major recovery.

The IMD has predicted a scaling down of rains in India as rainfall shifts towards the eastern coast of India, which could support prices to some extent.

The immediate support and resistance for the October contract are seen at 11.39 cents and 11.60 cents respectively.

(Commoditiescontrol Bureau)

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