Sugar Market Report for 23 February

The market continued to consolidate yesterday as the H-23 expiry looms. The market had opened 2 points firmer before dropping back to hit the lows of the day. Again the support was enough to encourage some fresh speculative buying which saw prices improve to over 20 cents where some resistance was found. However, in a similar move seen the previous session, prices spiked higher in the early afternoon suggesting some fund buying with prices hitting the highs of the day. Once the buying dried up prices dropped back to the morning levels but, eventually, the lows were revisited on the close before prices recovered marginally. The HK was more stable than the previous session when it dropped 21 points. It ended just one point weaker at +139 but had been down to +132 earlier in the day. The KN resumed its recent weakening dropping 6 points to end at +45 its lowest level since 24th October and some 48 points off from the recent highs at the beginning of the month. In London it was a similar picture with the structure weakening but remaining in the recent range. The KQ dropped to +15.90 as did the QV to +12.30. This meant the WP also slipped with the KK WP at 128.30 and the VV WP at 112.00. All eyes were on the spot month spread after the large drop the previous session. It would seem some of the trade longs are adjusting their positions in front of the expiry. The H-23 OI dropped to 61,225 lots as of COB 21st February with another 37,731 lots traded yesterday. The OI is its lowest in nine years with five trading sessions until expiry suggesting a limited delivery. With the large spot month premium suggesting a tight physical market it makes sense that the delivery will be limited. However, much can change before expiry.

Limited fresh fundamental news around with traders awaiting to see whether the expected large drop in Indian production starts to show when end of February data is released. It is now around a month until the next Brazilian CS harvest starts assuming the weather becomes drier by then. The CS region has had ample rain over the past 6 months and more heavy rain is forecast for the next 10 days which will ensure soil moisture levels remain excellent.

This morning the market opened 10 points higher before slipping back to near unchanged before improving. Currently, prices are 5 points firmer. The HK is 1 point firmer at +140 while the KN is unchanged. In early London trading the KQ is a tad weaker at +15.50 as is the QV at +12.00. The macro is a slightly positive picture this morning with crude slightly higher, grains/soya firmer while metals are weaker and the USD Index is a tad weaker. The BRL ended slightly firmer yesterday at 5.16 but quiet with the country still in carnival mode. More consolidation would seem likely today with decent support seen building below 19.80. As the trading range narrows a breakout of the recent range would seem likely. What is not so certain is direction. This may be dictated by the spot expiry. The KN is weakening but India is supportive.