Sugar Market Report for 27 May

Good morning,

NY sugar ended lower yesterday after dropping to its lowest level for eight sessions. London remained firm with the spot month making an new high. The market had gapped lower by 28 points on the opening after chatter that Brazil would cut the ICMS state tax which would cut the cost of gasoline possibly meaning lower ethanol demand and therefore, ultimately, more sugar produced. The market remained under pressure throughout the morning hitting the lows of the day just as US traders got to their desks. A partial (1 point) filling of the downside gap was seen as prices dropped to 19.27 where good buying was found. As the long liquidation dried up prices started to improve eventually filling the chart gap left on the opening but closed lower for the fifth session in a row. The NV was unchanged at -16 while the VH dropped back 3 points to -27. In London the market remained firm although it too took an early tumble in line with NY. Nevertheless, the spot month was back in the plus column by the close. The QV jumped another $2 to end at +17.40 while the VZ was considerably stronger gaining nearly $6 to end at +11.90. This meant the VV WP was up another $3 to finish at 113.70. However, the VZ was unchanged at 101.80. The large volume in the WP of Wednesday dropped away yesterday with less interest. It does seem to be a story of two markets at the moment with NY continuing to be obsessed with the Brazilian CS cane crop and how much sugar will eventually be produced. It would seem the President Bolsonaro has now got control of Petrobras fuel pricing policy which is likely to keep a cap on prices until either crude prices really jumps or after the October election. The strength is London is more difficult to explain although lack of Indian exports during the second half of the year maybe the main reason. However, the increasing WP will help refiners.

The Brazilian House of Representatives approved by an overwhelming majority to cut the ICMS tax on fuels, electricity, natural gas, communications and transport. However, Governors and Mayors will try to prevent the approval in the Senate as the cut will have a big impact on their revenue. It is a complicated calculation and the savings to the consumer will vary on what the rate charged in each State. The overall cut in gasoline is likely to be limited and even less for diesel and is more a case of prices not increasing. Given it has not passed through the Senate as yet this story may have some time to run.

This morning the market opened 3 points lower before quickly improving into the plus column but then slipped lower again. Currently, prices are 2 points weaker. Both the NV and VH are 1 point better at -15 and -26. In early London trading the QV is a tad lower at +17.00 while the VZ is virtually unchanged at +12.00. The macro is a mixed picture this morning with most markets appearing quiet and slightly lower apart from the other softs contract which are firmer as are metals. The USD Index is weaker today and at its lowest level since April 25th. After the large volatility of the past few sessions it maybe a quieter day given the US markets are closed on Monday. Nevertheless, NY looks vulnerable to dropping lower and the chart gap between 19.27/19.20 remains the down-side target. There is still good chance prices could improve especially if crude jumps although the market has had difficulty in holding above 20 cents

Monday 30th May NY Sugar is closed for the US Memorial Holiday. This means London sugar will close 1 hour earlier at 17:00 (London time)




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