Sugar Market Report for 3 February

Yesterday saw the market bounce back regaining much of the losses seen on the previous session. The market had opened 1 point lower before slipping another 6 points. This, swiftly, turned out to be the lows of the day with prices soon improving. By mid-day they were 30 points off the lows and after a breather, they improved further to hit the highs of the day mid-afternoon less than 10 points off the multi-year highs reached the previous session. However, the buying eventually dried up with prices falling back in day trader liquidation. Nevertheless, by the close, the market had improved and settled 11 points off the day’s highs. The HK improved a couple of points to end at +127 while the KN finished 4 points lower at +79. In London the spot month continued to weaken ending at just +0.30 as the last of the fund longs rolled out of the spot month. The KQ ended marginally weaker at +14.00. This meant the HH WP dropped just below 90.00 while the KK was slightly firmer at 117.00. The current strength of the market was emphasised yesterday with the good recovery from the correction of the previous session. The trading volume was good again although over 60% was switch volume as the funds and the trade continue to roll out of the spot month with 13 sessions before the H-23 expiry.

The news that Indian sugar production is running some 6% higher year on year had many scratching their heads with the earlier news in the week that total production will drop by over 5% compared with last season’s record 36 million tonnes. There will need to be a clear indication soon of falling production to justify this lower figure. If not then further exports will be likely.

Brazil has ended the tax exemption of ethanol imports with immediate effect it was announced yesterday. A tax of 16% will be levied until the end of the year rising to 18% in 2024. It is likely to hit the US more than anyone else. President Lula is travelling to the States next week when the increase is likely to be discussed. A reduction in ethanol imports will help the domestic ethanol industry although whether it has a huge impact on the sugar/ethanol split remains to be seen.

This morning the market opened 3 points higher but soon fell back. Currently, prices are 7 points lower. The HK is 2 points firmer at +129 while the KN is 1 point weaker at +78. In early London trading, the HK has gone to a discount at -0.50 while the KQ is valued slightly lower at +13.80. The macro is mixed today with crude lower while most other commodities mixed and the USD Index is firmer. The BRL ended unchanged last night at 5.505. The market remains firm but it will need to test the highs before long otherwise more liquidation could be seen. The structure still remains strong which will add more flat price support. The spot month in London continues to weaken but this may be a consequence of fund liquidation and will improve going into the last few days before expiry. The H-23 OI is still relatively high at 23,532 lots with another 8,764 lots traded yesterday.