Analysis: Raw Sugar Futures Plunge To 3-Year Low At 10.21 Cents/Lb

Singapore — Front-month NY No. 11 raw sugar futures crashed to an almost three-year low on Monday at 10.21 cents/lb ($225.09/mt) before settling at 10.30 cents/lb amid a global supply glut, weaker Brazilian real and heavy rains in Center-South Brazil and Europe easing concerns of a drought.

The front-month raw sugar futures was last lower on August 24, 2015 when it was 10.13 cents/lb.

The convergence of bearish fundamentals, technicals and macros caused the sell-off, which started on Friday. The front-month NY No. 11 futures contract fell by 30 points (0.30 cents/lb) on Friday before, falling another 24 points on Monday, ICE data showed.

India’s production estimate for the 2018-2019 (October-September) season at 34 million-34.5 million mt is likely to surpass the record output this year. The Indian Sugar Millers Association urged the government last week to allow exports of around 6 million-7 million mt next season. Both these factors put downward pressure on global sugar prices.

Furthermore, thin demand for Brazilian VHP has strengthened the bearishness in the market. The tonnage waiting to load at CS Brazilian ports on August 12 was 948,302 mt, well below 2.2 million mt at the same time last year and the lowest level since 2010-2011, Platts Analytics data showed.

Technically, the front-month NY No. 11 futures did not manage to break above 11 cents/lb on a settlement basis, hence avoiding the possibility of short-covering from funds, market sources said.

The funds have increased their net short position from a mere 4,340 lots on June 26, the smallest volume since the funds went short on December 12, 2017, to a net short position of 132,331 lots (6.72 million mt) on August 7, the latest Commitments of Traders Report showed.

On a macro perspective, the weakening of the Brazilian real has added pressure on sugar prices. The real started weakening on August 6, ahead of the first of the electoral debates on August 9. The lack of clarity on a coherent plan for reform weakened it further after the debate, with the currency settling at 3.9123 against the dollar on Monday, down 4.88% week on week.

The weakness in raw sugar prices is not just reflected in the outright prices, but also in the NY. No. 11 futures October/March spread. The October/March futures spread settled at a carry of 104 points on Monday, wider by 25 points week on week.

The widening of the spread indicates increasing availability of raw sugar to be delivered to the tape on the October NY No. 11 futures expiry, market sources said.

“The 104 point carry allows Brazilian producers to roll their sugar [position from October to March futures] since the carry cost per month is just 10 points and this would ease their selling pressure,” a trader said. With the next support level at 10.13 cents/lb within touching distance, the market is waiting to see whether prices will breach the support to hit single digits. The last time the front-month contract hit single digits was in June 2008, when it was 9.44 cents/lb, ICE data showed. “NY No. 11 [front-month futures] will definitely hit single digits when India starts exporting. The market needs to hit 7-8 cents/lb for a structural correction in supply and demand,” a trader said.

India is expected to export 600,000 mt of raw sugar evenly split between Q4 2018 and Q1 2019, Platts Analytics data showed.

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