Market Commentary

24/07/19: Sugar Market Morning Report

What a difference a day makes! Monday was a moribund day with little interest from any quarter. Yesterday saw a fresh contract low hit before prices rallied 60 points in excellent volume as shorts struggled to cover as resting selling was limited until prices pushed above 11.90. Technically, it was a positive performance with a key reversal seen off contract lows. The market had opened unchanged before settling into an 11 point range for the next 4 ½ hours. As US traders got to their desks prices started to slip as fresh selling emerged. Once the recent low was breached another wave of fund selling hit the market taking prices down to their lowest level since 21st May. However, with the market becoming seriously oversold and the lower BB holding firm a bout of short covering by the day traders started. As is often the case there was very limited selling above the market and it was not long before shorts were jumping in front of each other as panic set in to cover. Prices jumped over 40 points in 20 minutes soon breaching the highs of the previous three sessions and causing a sizable key reversal. Better selling volume was found above 11.90 which slowed the ascent but another wave of buying ensured prices closed at the highs and just under the 12 cent level. The total volume was good with over twice the lots traded than the previous session. The VH settled 4 points firmer at -98 while the HK was unchanged at -12 suggesting the flat price move was very speculative in nature. In London the VZ was slightly firmer at -11.10 while the ZH ended weaker at -10.40. Yesterday’s move was mainly a case of the market extending too far too quickly when the funds reacted to the large deliveries by increasing their net short positions and taking prices down to fresh contract lows.

There was no fresh fundamental news around yesterday. However, the background noise of poor growing conditions across India, Thailand and the EU plus limited sugar production in Brazil in favour of ethanol was beginning to get traders question on whether prices should be heading lower. The Indian monsoon is still lower than last year. For the week as of the 17th of July it was 20% lower and is still down 16% from the official start of the monsoon. Thailand is seeing reduced rainfall in the North and Northeast lower which is impacting on the rice crop. The cane areas are not as bad but could become worse if rains do not pick up during August and September.

The case against India by Brazil, Australia and Guatemala via the WTO regarding their perceived illegal subsidies rumbles on. The Indian government has blocked a request for the setting up of a dispute panel. They argue that its programmes were in line with its WTO obligations and urged the continuing of discussions outside a formal panel. However, it is likely the other producers will request the setting up of a panel at the next DSB meeting which is scheduled for August 15th. India cannot block their second request under WTO rules. Needless to say, the setting up of three separate panels to hear the dispute will take months to get a decision. Even if the decision goes against India there is no reason to believe they will discontinue the subsidies. They are likely to change them slightly which could then start the whole process again.

This morning the market opened 4 points lower before slipping further on long liquidation and fresh trade selling. Prices are, currently, down just over 10 points. The VH is 1 point firmer at -97 while the HK is unchanged at -12. In London the VZ is virtually unchanged at -11.00 as is the ZH at -10.50. This puts the VV WP at 55.5 – some $4.5 down since this time yesterday mainly on the back of the strength seen in NY’s flat price. The ZH WP is also $3 weaker at 45.00. Despite the big move yesterday the market has had time to reflect over night that the huge global stocks have not disappeared and will continue to weigh on the market. Nevertheless, there is a general view that prices were probably not justified below 11.50 and with the market getting oversold a correction was likely. As is often the case in sugar with the large fund present the corrections are swift and sharp. Although prices are lower currently it is unlikely prices will collapse and further short covering could see further gains. Support seen at 11.47 (lower BB) then 11.39 (contract low and yesterday’s low) then 11.36 (May low on 1st month cont. chart). Resistance seen at 11.91 (10 day ma) then 12.19 (mid BB) then 12.14 (recent high) then 12.62 (100 day ma).

Contact the ADMISI Sugar Desk team:
Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg
Phone: +44 2077168598

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