Sugar Market Report for 16 November

The market continued its meteoric rally yesterday hitting its highest level since the middle of April on fund buying and enforced short covering caused by Indian defaults. The market had opened 3 points higher before easing lower but then recovered again to opening levels. Eventually, the buying built taking out the 20 cent level. This appeared to trigger some further short covering and fund buying propelling prices up to over 20.30. The HK improved 9 points to +113 while the KN improved 8 points to +80. In London, the Z-22 contract expired (details below) with the ZH going out at +27.90. The HK was a little higher at +9.80 while the KQ ended at +18.70. This saw the WP improve with the HH WP ending at 104.00 and the KK WP at 119.00. Despite bearish fundamental news around prices continued to rocket higher with sellers, seemingly, taking a wait-and-see attitude and only on a scale-up basis with the uncertainty over Indian contract negotiated at lower levels.

The Z-22 contract expired in London yesterday in quiet trading. Preliminary data suggests a total of 359,500 tonnes of sugar (7190 lots) was delivered with the main sellers Wilmar and Louis Dreyfus and EDF Man as the largest receiver. Official data will be published by the exchange later today. The delivery is likely to be seen as bullish if only because the ZH settled at a large premium and the delivery was not large. However, it is just large trade houses selling sugar to another large trade house who generally is a receiver so nothing particularly unusual.

The International Sugar Organisation (ISO) yesterday revised their projected global sugar surplus for the current 2022/23 season at 6.2 million tonnes an increase of just under 10% from their previous forecast of 5.6 million tonne surplus. They see total production rising to 182.1 million tonnes while they see total consumption at 176.00 million tonnes. They reiterated that they estimated a 1.7 million tonnes deficit for 2021/22. The ISO’s surplus estimate is the highest so far and suggests other analysts will increase their estimates over the coming weeks.

Czarnikow sees Chinese raw sugar import demand falling to 4 million tonnes in 2023 from their estimated 4.47 million tonnes this year. Chinese imports have been falling since 2020 when they hit 5.45 million tonnes. Domestic consumption has been under pressure due to Covid restrictions. Additionally, a devalued Yuan has cut profit margins for importers reducing imports.

This morning the market opened 1 point firmer. Currently, prices are unchanged. The HK is 2 points firmer at +115 while the KN is also 2 points firmer at +82. In early London trading, the HK is $2 lower at +7.80 while the KQ is also lower at +17.50. The macro is mixed this morning with crude slightly higher, grains/soya lower and the USD Index also weaker. The BRL ended unchanged at 5.33 last night. In early trading, the market shows little sign of weakening significantly. The market is overbought and there would seem little reason for prices to rally further. However, the sellers seem happy to bide their time so further gains could well be seen. A correction is well overdue but its timing is a tough call at the moment.