Sugar Market Report for 24 August

The market made a dramatic turnaround yesterday as news that the Indian Government will not allow any exports next season. It went from hitting a seven week low earlier in the session then gaining 115 points. The market had opened 6 points weaker and had continued to fall taking out the double bottom at 23.29/31. This triggered further long liquidation and fresh selling which took prices down to the lows of the day and threatened to test the 23 cent level. However, everything changed as Reuters reported that no exports of Indian sugar would be allowed next season. In the space of 2 hours, the market spiked taking back the losses of the previous two days. However, once the initial short covering dried up prices soon reversed and gave back 70 points of the gains only to improve again during the latter stages of the session. Nevertheless, the market ended firmly but well off the highs. Perhaps tellingly, the structure barely changed given the volatility of the flat price which does suggest the speculative nature of the trading. The VH slipped 2 points to -33 while the HK only gained 3 points to +108. In London, the front spread improved again ending $2 higher at +18.80 while the ZH was barely changed at +9.00. This meant the VV WP improved to 167.70 while the VZ WP was unchanged at 148.90. The news from India triggered some panic short covering as many short term traders were running short expecting prices to drop below 23 cents. However, there does seem a lot of surprise in this announcement much before the monsoon has finished and the harvest started.

As mentioned above sources in the Indian Government have reportedly said that there will be no sugar exports next season as lack of rain has cut potential yields. They said they need to safeguard domestic supplies and production of ethanol. It does seem somewhat fortuitous that the announcement was made as prices were hitting near two month lows but it could be purely coincidental. The Government is very worried about food inflation especially as there will be a general election next April. They have already banned the exports of white rice and have recently imposed a 40% duty on onions. Local sugar prices have jumped this week to their highest level in two years. Food inflation is running at 11.5% its highest in three years. Of course, things can change and exports could well be allowed once the harvest is assessed but there certainly will not be any until well into next year.

Unica will release their CS harvest data today at 15:00 (London time) for the first half of August. It is expected to show excellent crush and sugar production as the weather during the first two weeks of the month was ideal for field work. A Platts survey sees sugar production at 3.54 million tonnes slightly less than the 3.68 million tonnes produced during the second half of July. Nevertheless, cumulative production could be close to 23 million tonnes continuing to suggest total production could well reach 40 million tonnes.

This morning the market opened 14 points higher but soon dropped back. Currently, prices are 7 points lower. The VH is unchanged at -33 while the HK is down 2 points at +106. In early London trading the VZ is unchanged at +18.80 while the ZH is a tad weaker at +8.60. The macro is negative this morning with crude and most other commodities lower. The USD Index is higher after spiking yesterday. The BRL was also firmer ending at 4.86 yesterday. The market seems to be taking a pragmatic view of the news regarding exports out of India after the initial knee-jerk panic. It is telling that there was little strength in the structure with the HK only improving by 3 points. Given the monsoon is not over it is too early to make any accurate predictions on production and therefore the possibility of exports. Indeed some have suggested that they may even need to import sugar but this is all conjecture. Most analysts have pencilled in low exports for India already. The market is now back in the middle of the recent range and may remain there for the time being unless Unica’s figures are much lower than expected.