Sugar Market Report for 20 January

The market dropped back further yesterday breaking below the lows of the two previous sessions. The market had opened 2 points lower before dipping slightly. However, with apparent support building at the previous day’s lows short covering appeared with prices gaining nearly 30 points by the time US traders started to get to their desks. However, a break above 20 cents failed which triggered further long liquidation with prices soon testing the double bottom at 19.68. This level was, eventually, broken which saw prices dip another 10 points to post the lows of the day. Prices did improve as day traders covered but dipped again into the close. The HK lost 1 point to end at +128 while the KN was 2 points lower at +64. In London, it was a similar story with the front two spreads weakening slightly with the HK ending at +16.20 and the KQ at +18.10. The WP also dipped slightly with HH WP at 112.60 and the KK WP at 124.40. The market appears to be trying to consolidate around 19.70 with little producer or end-user interest at current levels. News from India that they may not allow further exports had, ultimately, no impact.

Government and industry sources said yesterday that India is not looking to allow further exports this season over and above the 6 million tonnes already agreed and, probably, sold. Expectations that total sugar production will now be around 5% lower than last season’s record production of 36 million tonnes has meant that further export quotas will not be allowed. Whether production will drop as much as some have suggested remains to be seen. Year-on-year production is running 4% higher so some believe any drop will not be significant and a better picture will emerge over the coming couple of months. While yields may be lower the planted area is thought to be around 2% higher than last season which may mitigate some of the expected output drop. One should remember that this time last year total production was put at around 32 million tonnes some 4 million tonnes less than actually achieved so it is likely there is some poetic licence in the current production expectations.

This morning the market opened 8 points firmer before falling back. Currently, the market is 1 point lower. The HK and KN are both 1 point stronger at +128 and +65 respectively. In early London trading the HK is lower at +15.50 while the KQ is virtually unchanged at +18.00. The macro is mixed this morning with crude firmer and grains/soya mixed. The USD Index is unchanged and the BRL ended around unchanged at 5.176 last night. The market seems likely to remain within the range seen over the past few sessions with resistance at 20 cents and support building from 19.50. However, a break lower seems more likely than a rally back to the week’s highs at the moment but the macro is likely to dictate short term direction. The continuing strength of the spot spread should also add support.