Sugar Market Report for 14 January

Good morning,

The market saw a reversal in prices yesterday as the macro turned negative and the short covering dried up. The market had opened unchanged before slipping 10 points in thin volume. Prices did then make a marginal recovery to hit the highs of the day by mid-morning but never got near the highs of the previous session. After holding in a narrow 10 point range until early afternoon prices started to drop as the macro deteriorated further. A sell stop triggered at 18.10 took prices down to the lows of the day and below 18 cents. However, prices did recover slightly over the next couple of hours but ended weak. The HK lost 4 points to end at +22 while the KN was 2 points weaker at +16. In London there was little follow-through buying of the structure seen the previous session but still remain firm. The HK finished lower at +9.70 while the KQ was also weaker at +7.30. This meant the WP also dropped a tad with HH |WP finishing at 98.50 while the KK WP was at 93.60. Yesterday’s drop was triggered by a general sell-off across commodities although increasing production in India and Thailand is not helping sentiment.

Rohit Pawar CEO of Baramati said yesterday that that the Indian state of Maharashtra may end up production 12 million tonnes of sugar this season some 6.5% higher than previous estimates. He reported that mills across the state have reported increased yield per hectare. If this increase is seen across the entire growing regions of India then up to another 2 million tonnes of sugar could be produced above the 31 million tonne expectations before the harvest started and is one reason prices have fallen recently.

There is a 67% chance of La Nina conditions prevailing until the Northern Hemisphere spring according to the US National Weather Service’s Climate Prediction Centre. They then see a transition to Enso-Neutral conditions developing. There has been concerns that La Nina would make for dry conditions across Brazil’s CS. While it has been dry in the very south of Brazil and Argentina it has had no impact, so far, on sugar with very good rains for several months which has replenished soil moisture levels. The current weather forecast suggests that good rains will continue for, at least, the next ten days.

The drop in prices recently has triggered some physical off-take with Ethiopia looking to buy about 200k tonnes of white sugar while Egypt’s Delta Sugar Company has issued an international tender for 80k tonnes of raw sugar. Two consignments of 50k tonnes and 30k tonnes are sought with tender deadline this Sunday.

This morning the market opened 1 points firmer before improving and is, currently, 8-9 points higher. The HK is unchanged at +22 while the KN is 1 point weaker at +15. In early London trading the HK and KQ are unchanged at +9.60 and +7.30 respectively. This morning the macro is mixed with crude slightly higher while grains/soya are mostly lower. The USD Index is also slightly lower while the BRL ended slightly firmer at 5.53 last night. The market is looking to build some support above 18 cents. Much will depend on the macro as to whether this support holds but with some physical off-take being seen now prices have dropped to 5 month lows it would seem unlikely from a fundamental basis prices will drop too much form their current levels. However, increasing production in India and Thailand plus continuing good rains across Brazil’s CS the up side would also seem limited for the time being.