Sugar Market Report for 2 February

The widely anticipated correction was seen yesterday as the market gave back much of the gains of the previous session. Nevertheless, it is still up 125 points in the past week. The market had opened 4 points firmer before improving another 8 points to make a new high for the move. However, the market soon reversed and within 30 minutes was in the negative column. The market then calmed for the next three hours remaining within a 15 point range. It was only later in the afternoon that prices dropped further as some fund long liquidation appeared with prices dropping to the lows of the day by the close. Unsurprisingly, the HK dropped 7 point to finish at +125 while the KN was down 8 points ending at +83. In London the spot month continues to weaken against the rest of the board with the HK ending $4.70 lower at +2.90 which is a new low. The KQ also dropped over $4 to finish at +14.60 its weakest since the end of November. This meant the WP also weakened with the HH WP finishing at 91.60 and the KK WP at 116.20. Yesterday’s correction will have surprised few given the market gains over the past week which had seen it become, technically, over bought. Nothing too significant changed on the fundamental front although many had felt the recent rally was not fully justified.

By the end of January, Indian mills produced 21.6 million tonnes of sugar so far this season which is 6% higher year on year according to ISMA. This will cast doubts over their recent estimate that total sugar production will be down 5.5% from last year’s 36 million tonnes. Time will tell but the increased planted area may well mean total production is only marginally lower than last season.

Brazil exported 2.12 million tonnes of sugar in January up over 36% compared with the 1.35 million tonnes exported in January 2022. The CEO of Brazilian trader, Alvean, said yesterday that he sees logistical bottlenecks developing as Brazil harvested a bumper grain crop at the same time sugar production is expected to rise. This could cause delays and increased costs to get product to port. It is also likely port congestion will build as well. This is not an uncommon occurrence and, generally, the issues resolve themselves in time. Buyers will also be aware of the situation and will take into account the potential delays.

The Thai harvest is around 47% completed as of the end of January. So far 50.6 million tonnes of cane has been cut up about 4% year on year. Sugar production has reached 5.52 million tonnes up 9.37% compared to this time last year. Sugar content is up 4.5%. Estimates for the whole season are around 105 million tonnes for cane and just over 12 million tonnes of sugar.

This morning the market opened 1 point lower before swiftly dropping another 6 points on some follow-through selling after yesterday’s weak close. However, once done prices improved and are, currently, around unchanged. The HK is 2 points firmer at +127 while the KQ is unchanged at +83. In early London trading, the HK is lower yet again. Last at +0.60 and looking as if it may go to a discount. The KQ is also weaker valued at +14.20. This morning the macro is positive with most commodities trending higher and the USD Index lower after the Fed raised its key rate by 0.25 points to 4.5 – 4.75% its highest level since 2007. The BRL improved again to end last night at 5.05. Today will be key as to whether the market can rally back to challenge the highs or see more long liquidation. It would seem unlikely the funds will increase their longs until the market get back to near the highs as they now have a significant long position. However, the weakening structure in London may be an indication that demand for white sugar, at least, is waning and could see NY structure slip.