Sugar Market Report for 30 September

Good morning,

The market calmed yesterday with most eyes on the spot month which expires today and continued to maintain its healthy premium. The market had opened 2 points lower before slipping further reaching the lows of day shortly after the opening. The market slowly recovered but interest was limited. Prices remained caught within a narrow 9 point range until mid-afternoon when trade buying took prices to the day’s highs. However, resistance at 17.80 was enough to stop any further gains and the market settled near the highs but with a lower high for the sixth session in a row. The spot month remained firm against the rest of the board but the volume dropped away with two sessions to expiry. The VH improved to +67 but well below the +88 reached on Monday. The OI dropped to 28,779 lots with another 17,858 lots traded yesterday. It now looks as if around 1 million tonnes could be delivered mainly from Brazil. The HK maintained its strength gaining another 6 points to end at +78 making a two month high continuing to suggest that physical tightness will remain through the first quarter next year. Continuing uncertainty over Brazil’s CS prospects and India’s export policy is keeping the nearby structure firm. In London it is a similar picture with the ZH and HK maintaining healthy premiums both improving again to finish at +36.50 and +11.20 respectively yesterday. The WP improved slightly with ZH WP ending at 138.00 while the HK was a tad lower at 101.50. The market continues to be buffeted from the wider macro picture while nearby physical tightness stops any significant drop in prices seen elsewhere across the commodity spectrum. However, trading volume dropped yesterday and maybe a precursor to quieter trading after the V-22 expiry.

The EU beet crop has had a choppy season. Decent planting conditions saw a good start to the beet development but very hot and dry weather have impacted since. Now the added issues of processing the beet are causing concern. French and German processors have started operations early due to concerns over available fuel/gas to power factories. Yesterday France’s largest processor, Tereos, reported they had to slow output at some factories due to limited supplies of diesel after strikes at refineries of TotalEnergies. Tereos provide diesel to farmers for their delivery trucks to move beet from field to factory.

Brazilian company Sao Martinho reported yesterday that they are seeing revenues from sales of sugar some 30% higher than those for ethanol. However, they did say that increasing ethanol blending in India to gasoline will help maintain global sugar prices longer term. India is aiming to have 20% blending into gasoline by 2025 which should slowly reduce sugar output. However, for the coming season most expect output to be at or above last year’s 36 million tonnes allowing 8-10 million tonnes of exports as and when the Government allow.

This morning the market opened 6 points firmer before slipping back a touch. Currently, prices are 5 points firmer. The VH is 2 points firmer at +69 while the HK is unchanged at +78. In early London trading the ZH is $1 lower at +35.50 while the HK is unchanged at +11.20. The macro is a more positive picture than of late – probably more a case of a small correction than any optimism. Most commodities are trending higher as the USD Index is lower as it continues to fall back from hitting over 20 year highs on Wednesday. The BRL weakened to 5.40 yesterday its weakest against the UDS since July. This Sunday sees the first vote for a new President. The election is probably the most polarised ever with right-wing current President Bolsonaro pitted against left wing ex-president Lula da Silva who remains the favourite to win. Currently, the opinion polls put Lula 10-14 points ahead of Bolsonaro but still below the 50% he needs to win the first vote. Lula is seen as a bearish influence on sugar. The market seems likely to remain firm. The V-22 is very likely to expire at a large premium. Depending on the size of the delivery will determine how bullish it will be seen.