Sugar Market Report for 21 September

Good morning,

Yesterday saw a dramatic recovery in prices after H-23 hit it lowest level in over a year on Monday. The market had opened 11-12 points firmer before slipping back to hit the lows of the day during the morning. However, as US traders got to their desks prices started to improve. Short covering met with limited scale up selling which saw prices gain over 50 points during the afternoon with prices reaching the day’s highs shortly before settlement when prices fell away from the highs on some late day-trader liquidation. The VH gained 7 points to end at +39 while the HK was 5 points firmer at +60. With eight trading sessions to go the OI in V-22 dropped to 88,368 lots with another 38,709 lots traded yesterday.

Currently, it does look as if the delivery will be limited but, perhaps, the spot premium may see more sugar come to the tape. In London is was quieter with Z-22 ending a tad weaker as positions are adjusted post the V-22 expiry. The ZH dropped to +27.70 while the HK was also weaker at +10.70. There seems a view that India will look to refine as much white sugar as possible given the strong WP. While the WP did slip lower yesterday it still remains at an attractive price with the ZH WP at 135.30 and the HH WP at 107.60. Yesterday’s improvement may have surprised some after the market hit their lowest level since August 2021 (basis H-23) on Monday. The strengthening structure will have encouraged some short covering by the funds and pricing from end-users and probably fresh trade buying meeting with limited scale up selling with producer selling well above the market. The market is now back in the range seen over the past month before prices broke out of the range last Friday.

There seemed no particular fresh fundamental news to explain the jump in prices. Perhaps the lack of news from the Indian Government on their export policy for 2022/23 had some impact and that Indian mills will be looking to export white sugar rather than raws once exports are allowed. Brazilian CS total production still remains uncertain. Some see total production above 33 million tonnes while other are not so sure. With ethanol production barely a consideration at the moment it is now down to how much cane is available and how long the harvest tail will be. The market’s structure suggests a near-by tightness which will slacken by second quarter next year.

This morning the market opened 10 points firmer with follow-through buying after yesterday’s rally. Currently, prices are holding around 13 points firmer. The VH is 1 point weaker at +38 while the HK is 1 point firmer at +61. In early London trading the ZH is a tad weaker at +27.40 while the HK is a tad firmer at +11.10. The macro is a positive picture this morning with most commodities higher with crude up around 2.5% (after Putin’s TV broadcast). The USD Index is also firmer and back near the 20 year highs. The market looks set to remain firm although it is probably likely to remain within the range seen earlier in the month. The macro should have little impact on sugar at the moment as ethanol parity remains so far below current levels. Whether the recent strength triggers the funds into fresh buying remains to be seen but that will probably depend on what is happening in the broader macro picture.