Sugar Market Report for 29 September

Good morning,

The market recovered yesterday but remaining resolutely within the range of the past three weeks. The market had opened around unchanged but soon came under selling pressure dropping to the lows of the day by mid-day with the V-21 dropping to its lowest level since 9^th August. However, with support again seen at just below 19.45 (basis H-22) the market started to improve as day-traders turned buyers and the VH started to improve. The market gained 46 points over the next couple of hours to hit the highs of the day mid-afternoon. Prices then eased back on some light long liquidation but more buying appeared on the close to ensure the market settled near the highs of the day and bang in the middle of the recent range. The VH improved from  over a one cent discount the previous session to settle 11 points firmer at -86 and the last positions are closed in front of the expiry tomorrow. The OI in V-21 dropped to 20,932 lots with another 17,459 lots traded yesterday which continues to suggest a small delivery. The HK improved a couple of points to end at +52. In London the structure continued to strengthen with the ZH improving $2.50 to end at -1.40 while the HK was also improved $2.40 to settle at +6.70. This meant the HH WP was firmer at 73.80 while the KK WP was slightly weaker at 78.60. Having failed to break out of the top end of the range late last week the market saw a test of the lower end of the range yesterday which also held.

There is limited fresh fundamental news around. The market now awaits further information from Brazil on the CS cane crush which is coming to an end – the speed still to be determined. There has been some rains recently which will have been gratefully received but much more is needed over the next 6 months to help the cane to recover after the drought over the past 18 months. Demand remains muted. While the V-21 did recover slightly yesterday it is still at a large discount and the current OI suggests limited appetite to receive. Nevertheless, the market is going to see another global production deficit next season which starts officially on Friday. End users have, undoubtably, been using destination stocks and will need to replenish in time. Estimate at the moment are suggesting 1-3.5 million tonne deficit. Even with India exports things are going to remain very tight especially through to the start of the next Brazil CS harvest.

This morning the market opened 1-2 points firmer before improving as the VH jumped over 12 point to trade at -72. However, once the early buying subsided prices dropped back with he H-22 slipping into the negative column. Current the H-22 is trading around 6 points weaker while the VH has slipped slightly to -75. The HK is 1 point firmer at +53. In early London trading the ZH is a little firmer at -1.20 while the HK is valued slightly weaker at +6.70. The macro is mixed this morning with energy lower after Brent crude hit three year highs yesterday. Currently, Brent is around $3 off these highs. Grains/soya are broadly higher. The USD Index is firmer again and at its highest level since November 2020 on concerns over the Fed raising interest rates. This may continue to put pressure on commodities. The BRL also dropped against the USD yesterday ending the day at 4.43 its weakest in nearly two months. Having tested and failed to break out of either end of the recent range the market may take a breather and wait to see how the V-21 goes out. However, one does get the impression the support is probably greater than the resistance so a probe higher would seem more likely than a collapse in prices but this is probably also dependant on the macro which remains nervous.