Sugar Market Report for 9 June

Good morning,

The market made a new low for the recent move yesterday but recovered back to unchanged by the close. The market had opened unchanged but soon dropped mainly on the back of the previous weak close and negative technical picture after an island reversal was formed the previous session. The market then settled into a narrow 11 point range until mid-afternoon when a bout of profit taking saw prices rally 25 points. However, once this short covering dried up prices slipped back to end the day around unchanged. The trading volume was, again good as the funds continued to roll positions out of the spot month. The NV was 1 point weaker at -25 while the VH rose 2 points to end at -36. In London it was a less volatile day than the previous session with the QV improving to end at +22.20. However, the VZ lost another $2 to finish at +14.00 this meant the WP weakened again with the VV WP finishing at 117.30 and the VZ at 103.30. Yesterday’s action was, in hindsight, probably predictable with some follow through selling which soon hit some decent support. When it became clear further fund selling was not going to appear a bout of speculative short covering was seen. However, the overall sentiment remains negative and prices dropped back to unchanged by the close.

As suspected by other analysts ISMA confirmed yesterday that Indian sugar production for this season could reach 36 million tonnes. 29 mills are still operating . The president of ISMA, Aditya Jhunjhunwala, suggested that in light of the increased production, the Government should allow an extra 1 million tonnes of exports over and above their 10 million tonne cap. This would still mean stocks at the end of the season would be around 6.7 million tonnes. Given production looks likely to be similar again next season assuming a decent monsoon then exports are likely to resume next season. The Indian weather service (IMD) reported yesterday that after a rather limp start rains are likely to pick up by mid-June which will be welcome relief as, since the beginning of June, rains have been 42% below average.

Unica is likely to release their second half May harvest data this week. A Platts analysts survey sees total sugar production for the period at around 2.17 million tonnes. The weather has been favourable with less than 1 day lost to rain with around 250 mills now operating. Production is expected to be around a similar level to previous seasons but will still lag on a cumulative basis after a slow start to the crush. The market is now waiting to hear the Brazilian Senate’s vote on the proposed cut in ICMS tax which would cut the price of fuels and the inevitable drop in ethanol prices. This would lower the ethanol parity price and encourage more sugar production.

This morning the market opened 1 point higher before improving another 8 points. However, prices are, currently, unchanged. The NV is unchanged at -25 while the VH is 1 point firmer at -35. In early London trading the QV is weaker at +20.80 while the VZ is a tad former at +14.50. The macro is a slightly negative picture this morning with most commodities trending lower. However, USD Index is unchanged while the BRL finished around unchanged last night at 4.88. The market, having taken a large tumble on Tuesday, looks likely to try to consolidate at around the 19 cent level. With Unica imminent it would seem unlikely prices will fall too much more given they recovered to unchanged by the close yesterday. Prices could improve with little selling above the market but it would seem unlikely any significant improvement will be seen.