Sugar prices slump on technical selling
Raw sugar futures prices in New York extended their losses of the previous session, plumbing new multi-month lows, after breaking definitively downward through the key 18 cents a pound level.
With technical support definitively breached, markets are now looking at the prospect of a record Brazilian crop, the Indian government apparently determined to kick the can of potential imports down the road for as long as possible.
March raw sugar futures were trading down 2.2% in early afternoon deals in New York, at 17.32 cents a pound, having falling to 10-month lows of 17.05 cents a pound earlier in the session.
Technical sell-off
The contract first broke through a band of technical resistance, around the 18 cents a pound level, on Friday.
Markets sold off quickly, but found some bargain buying which put prices back into their range, sparking hopes that a bottom had been made.
But when prices fell back below the 18 cent level on Monday, no buyers emerged to reverse the declines, in a sell-off which has continued
Indian hopes recede
Commerzbank saw the recent sell-off in raw sugar as driven by bearish fundamentals, on top of the recent technical pressure.
“It has already fallen sharply since February, its slide exacerbated by a marked reduction in net long positions held by short-term-oriented market participants” Commerzbank said.
“During this time any hopes of Indian sugar imports in the near future evaporated”, the bank said.
‘Flight from reality’
Last week the Indian government left its production forecast of the current season at 22.5m tonnes.
By keeping this figure, which most market watchers consider significantly too high, the Indian government has avoided admitting the fact that some imports will be needed before the next season, to meet local demand.
“The crop has ended everywhere except Uttar Pradesh, so soon no one will have any excuse for not facing up to the reality of a very poor sugar production this year,” noted Marex Spectron this week, pegging expectations at 19.5 to 19.8m tonnes.
But Marex noted that a government minister has actually accused the Indian Sugar Mills Association, which expects a crop of 20.3m tonnes, of underestimating production.
The broker said the accusation “can only be described as a flight from reality”.
“Still, a statement of the government’s serious intent cannot now be far away,” Marex Spectron said.
Bigger Brazilian production
“At the same time, more and more observers are anticipating a global surplus in 2017-18,” said Commerzbank, noting an expected sharp recovery in Indian production, and ideas of a fresh record for Brazilian production, as can crushers favour sugar over ethanol there.
Sugar trading company Wilmar last week, the forecast 2017-18 sugar production in Brazil’s main Centre-South sugar belt at a record 36m tonnes.
“The prospect of a supply surplus in 2017-18 is likely to continue weighing on the sugar price,” Commerzbank said.
Source: Agrimoney
