Market Commentary

18/07/19: Sugar Market Morning Report

The market dropped again yesterday reaching its lowest level since the end of May (on the front month continuation chart) as the huge London Q-19 delivery was digested. The market opened 6 points better before swiftly dropping back to virtually unchanged. Prices then trundled along within a 6 points range for the next 4 hours. Prices did improve a little more around midday pushing above the highs of the previous session. However, little traction was achieved and prices quickly dipped lower again moving into negative territory just after US traders got to their desks. Prices continued to drop making new lows for the move late afternoon having broken below the double bottom at 11.83/82. Good scale down buying was noted from 11.90 but the fund selling was sufficient to ensure prices closed weak. The VH slipped 2 points to -106 while the HK was 1 point better at -12. In London things were somewhat quieter post expiry with the VZ ending unchanged at -10.60. The ZH ended at -11.40. The market continues to remain very weak mainly because of the huge deliveries made against N-19 in raws and Q-19 in whites which suggests a greatly oversupplied market despite concerns over production in several large producers suggesting a relative large deficit in 2019/20.

 The total white sugar delivered against Q-19 was a massive 794k tonnes. The fact that it is all from Thailand surprised most traders. Coupled with the raw N-19 delivery it means 1.4 million tonnes of Thai sugar has been delivered mainly by one trade house. While it does get a good portion of the Thai stocks moving there is concern that a large percentage of the sugar delivered does, as yet, not have a home. Time will tell but traders will be keeping a keen eye of vessel nominations.

India’s monsoon rains were 20% below average in the week ending yesterday according to the Indian Met department. However, the rains have been scattered with flooding in some areas and hardly any rain in others. The central regions received 68% less rainfall last week which is likely to impact on soybeans and cotton. The IMD did comment on the fact that the actual monsoon season dates seems to be shifting. It is likely that the official start date of 1st June maybe shifted further into the month and the finish date of 1st September also moved. The first month of the season has seen weak rain for seven of the past 11 years, while the tail end has often lingered two to four weeks beyond scheduled withdrawal. Of course the amount of rain will still be critical whenever the season starts.

Brazil and India are expected to sign a memorandum of understanding on the production and trade of ethanol it was announced yesterday. Indian Prime Minister, Narendra Modi, will make an official visit to Brazil in November. It is thought President Bolsonaro is keen to help India boost ethanol production and make them one of the largest producers in the world. The thorny issue of Indian sugar export subsidies is also likely to be on the agenda. Brazil is asking the WTO to establish a panel to resolve its dispute with India over the ‘illegal’ subsidy payments to farmers and mills. This follows a failed attempt to reach a resolution between the two countries earlier in the year. While the India government has made promises to ‘tweak’ their payments to adhere to WTO rules it is unlikely they will satisfy Brazil and other producers. However, it is unlikely India will cease the subsidies for next season as they have such huge stocks to shift.

This morning the market opened a couple of points firmer where they currently remain. Just a 4 point range seen in the first hour of trading. The VH is 1 point better at -1.05 while the HK is unchanged at -12. In London the VZ is firmer at -9.80 and the ZH is also a tad better at -11.00. This puts the VV WP firmer at 53.60 and the ZH WP also firmer at 40.50 but still well below any refiner’s costs. The market continues to look weak and a technical key reversal was seen yesterday. However, the market is now oversold and remains below the lower BB having settled below it for the past three sessions. A fourth consecutive settlement below is rare. Therefore, although a new low for the move might well be seen it is likely to be limited. However, the up-side looks equally limited in the short term so some consolidation around current levels would seem likely today. Support seen at 11.76 (yesterday’s low) then 11.62/60 (double bottom) then 11.36 (eight month low). Resistance seen at 12.20 (10 day ma) then 12.37 (mid BB) then 12.65 (recent high) then 12.69 (100 day ma).

Contact the ADMISI Sugar team:
Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg
Phone: +44 2077168598
Email: admisi.sugar@admisi.com

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