Written Commentary
Good morning,
The market jumped again on Friday as nearby supply concerns continue with London hitting its highest level since April 2017. The market had opened 12 points higher before surging higher with buying meeting with limited selling until reaching the highs of the day where the selling increased. It was enough to see prices swiftly reverse with prices dropping throughout the rest of the morning and early part of the afternoon when the lows of the day were reached. However, with recent support seen at unchanged prices started to improve. The market steadily improved over the last three hours of the session to hit the highs again shortly before settlement when prices slipped back 10 points. Nevertheless, it was a strong close aided by a weak USD which had plummeted on poor US economic data. The start of the official fund position roll saw the HK hold but not gain ending 1 point weaker at +72 while the KN improved 6 points to settle at +59. 70% of the trading volume was spread based. In London the front month was, again, very firm as good buying continued to underpin the market and shorts continue to be squeezed out of positions. The OI in H-21 London remains high with a week until expiry at 29,717 lots as of Thursday’s close. Therefore, it looks as if the delivery will be large as it probably suits both sides.
The COT as of the 2nd February saw the funds/specs cut their net long position by 3,532 to 216,277 despite prices improving during the reporting period suggesting the gain are more fundamentally based. The non-commercials cut their net long position by 6,171 to 149,896 in line with grains where the funds also trimmed positions. However, the drops were only marginally suggesting it was more some of the short term funds booking some profits than any wholesale sell-off developing. The commercials also cut the net shorts by 7,418 to 478,126 as end user priced as the H-21 expiry comes into view. The Index funds cut their net longs by 3,887 to 261,849.
Both markets are seeing deep backwardation developing and looks set to continue as buyers look to take advantage of the tightness of the freight market especially regarding the lack of containers. However, some market chatter about shipment delays out of Brazil once the new season’s sugar is ready to ship. A record but late Soy harvest could mean shipping bottlenecks developing from April onwards.
This morning the market opened 4 points firmer in mainly spread volume. Prices improved slightly before falling back slightly where they currently remain. The HK is unchanged at +72 as is the KN at +58. In early London trading the HK is $1 firmer again at new highs pf +22.60 while the KQ is slightly weaker at +21.70. The macro is positive this morning with Brent crude above $60 and most other commodities slightly higher despite a firmer USD which has recovered slightly from its drop on Friday. The sugar market remains firm and could continue to improve with the January highs at 16.75 the next up-side target. There is little selling in the front month but the funds will now be concentrating on their roll which will leave trade houses to decide on their expiry strategy – as in London a large delivery would seem likely at the moment. Down-side looks limited at the moment with end-users keen to price on any weakness.
Contact the ADMISI Sugar Desk team:
Howard Jenkins, Kevin Watkins, Steven Trigg
Phone: +44(0) 20 7716 8598
Email: admisi.sugar@admisi.com
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