Sugar Market Report for 6 October

Good morning,

Yesterday saw an inside day with prices rising and forming a short term double bottom at 19.62/63. However, the trading volume was dreadful at less than 70k lots. The market had opened 5-6 points firmer before slowly retreating to the lows of the previous session where enough support was found to encourage some fresh buying and short covering. Prices improved gaining over 40 points by early afternoon hitting the highs of the day. Prices then slipped back on some light day-trader liquidation but the market remained relatively firm through to the close to end in the middle of the day’s range. The HK slipped 1 points to end at +46 as did the KN which finished at +56. In London the front month spread went to a very small premium for the first time for several months ending at +0.10.The HK was unchanged at +4.70. The WP was quiet with HH WP unchanged at 69.80 while the KK WP was a tad weaker at 75.20. It was another dull session with prices remaining resolutely within the range seen over the past month. The strength of the energy markets appears to be having little direct impact on prices as yet but certainly adding some support to the market. However, the weakness of the BRL, ending at 5.47 last night, is countering to a certain extent.

Yesterday Stone X released their latest view on the new season sugar market. They see a global deficit of just 800k tonnes due to improving production in Asia and Europe. This is against a 2.9 million tonnes deficit seen in 2020/21. They see Indian production hitting 31.50 million tonnes and Thai production improving neatly 40% to 10.5 million tonnes after the very poor previous harvest. They see EU plus UK sugar production up around 12% at 17.2 million tonnes as yields are boosted by a wet summer across the region. For the next Brazilian crop they see sugar production improving to 34.2 million tonnes on a total crush of 565 million tonnes. Given India sugar stocks at the beginning of the season at over 8 million tonnes they should be able to cover a deficit of this size.

This morning the market opened 5 lower before improving back to unchanged before then slipping lower again. Currently, prices are around 5-7 points weaker. The HK and KN are both 3 points weaker this morning at +43 and +53 respectively. In early London trading the ZH is unchanged at +0.10 while the HK is unchanged at +4.60. The macro is mixed with energy complex generally higher while Grains/soya are mixed and the USD Index is higher again at 94.20. As mentioned the BRL has weakened against the USD ending at 5.47 yesterday its weakest level since late April. Sugar is suffering from a lack of interest at the moment seeming happy to remain within the range seen since early September. The issues with the Brazilian harvest are supportive while potential India sales are capping the market. Therefore, the funds probably hold the key as to which end of the range the market eventually breaks out. Further fund liquidation maybe seen as up-side potential diminishes. The weakening of the structure in NY is also not helping sentiment but firm energy prices and end-user buying should limit the down-side.