Sugar Market Report for 6 July

Yesterday the New York market was closed for the Independence day holiday. London, nevertheless, was rather more active than normally expected on a US holiday with good gains seen in all but the spot month which saw the QV drop again to end at its weakest level at -24.50 as longs continue to liquidate on the back of very limited demand. The rest of the board saw good gains as concerns over the amount of frost damage to the cane across Brazil’s CS continues to be accessed. To a certain extent it was catch-up for London after seeing only minimal gains on Friday when NY finished with reasonable gains although it was an inside day after the volatility of the previous session. Raw sugar is also seeing limited nearby demand as the VH remains weak ending 3 point lower at -22 while the HK was 2 points weaker at -88. Nevertheless, the structure of the markets both suggest that supply tightness due to lower Brazilian output will impact late this year and into first quarter next year.

The COT as of the 29^th June saw the funds/specs increase their net long position by 5,507 to 190,419 which was probably rather lower than expected given the market gained 90 points during the period although the trading volumes were limited. The non-commercials increased their net long position by just 283 to 148,209 which confirms limited interest from the funds despite the price improvements. The commercials increased their net short position by 7,487 to 407,564 as trade covered positions on both sides and little evidence of any significant end user pricing. Their view maybe there is time until the V-21 expiry.

ISMA’s Association Director, Abinash Verma said in an interview that there will be ample opportunities for India to export another 6 million tonnes of sugar next season. He suggested the Government should announce any subsidies for exports in a timely manner and not delay as seen this season. Of course, there is an argument that the Government may not need to give any subsidy given current price levels and the problems in Brazil and growing concerns over Thailand’s ability to increase production after a very poor harvest this season. Therefore, it would seem India maybe in a similar position as this season with exports plugging the gaps in supply. Verma did point out that Indian consumption has been rather more robust than many had feared given the lock-down restrictions seen over the past few months across the country. ISMA, therefore, expect total consumption to be over 26 million tonnes around the same levels pre-pandemic. He also remarked that India’s ethanol blending programme has a bright future but has a long way to go suggesting limited impact on next season’s sugar production which he sees as likely to be well above domestic consumption.

There has been much chatter about the damage possibly caused to the cane across Brazil’s CS during the recent spell of cold weather that has now dissipated. Varying views on what the extent of the damage has been and it will be several more days before any meaningful picture will emerge. However, given the frosts were extensive and the cane already under stress due to the prolonged dry weather it is likely some damage will be seen.

This morning the market opened 20 points firmer which was in line with the gains seen in London yesterday. The market then improved further but soon fell back after the market on opening buying subsided. Currently, prices are back to opening levels of 19-20 points firmer. The VH is 1 point better at -21 while the HK is 2 points better at +90. In early London trading the QV is firmer valued at around -23.50 while the VZ is also a tad firmer at -7.60. The macro is generally positive this morning with crude at new highs after the OPEC meeting was called off yesterday. This means, for the time being there is no deal to increase production. Metals are higher while grains/soya are mixed. The USD index has taken a tumble trading at just above 92.00. Sugar looks likely to be well supported for the time being with further gains looking likely. However, with prices well above 18 cents it maybe an opportunity for India to conclude further sales without subsidy. However, whether they will be able to find willing buyers remains to be seen as demand remains poor. A push through 18.50 may unleash some fund buying who certainly have the ammunition to buy good quantities but whether they see enough up-side potential with the spot at a discount remains to be seen.