REPORTS

Fresh fundamental news is scarce but what there is, is bearish as statisticians still expect a substantial surplus for 2017/18. At the annual ISO seminar in London, the global head of sugar at Cofco International reminded his audience that output would increase in India Thailand and the EU and this would more than offset a drop in Brazilian sugar output if it were to favour ethanol. He expected 45% of the cane juice would go to sugar production in the next 2018/19 crop, down from 47-47.50 in 2017/18 and that higher gasoline prices would drive demand for ethanol and mills would switch production to the fuel. That fact notwithstanding, supply of sugar would continue to weigh on prices given slack demand.

The decision by Pakistan’s government in a meeting of the ECC (Economic Coordination Committee of the Cabinet) to allow exports of 1.5 MMt also weighed on sentiment. Platts reports that 500K MT worth of exports with a subsidy of PR 10,700/MT have already been applied for and it is reported that of these 280 to 300K could be exported between now and the end of the year with the balance in early 2018. Much of this sugar will be exported to Afghanistan but the Middle East and Indian Ocean region as well as Sudan and parts of East Africa are other likely destinations.

The markets have lost their momentum for the time being and with the speculative community now net long, having covered in excess of 100k lots since the October NY expiry, producers have less hope for a short covering rally to sell into. Whilst Funds and specs could add to longs, the sugar fundamentals alone are currently not that supportive. The Macro situation (strong energy prices following an agreement at the OPEC-Non-OPEC summit to extend substantially the current quota agreement, for example) would be helpful, as would a strengthening of the BRL or a general weakening of the USD. This may however be a slow process and in the meantime there is much pricing still to be done by producers and not much evidence of increasing demand, especially with China currently out of the equation.

In the short term, technical resistance basis March NY lies at 15.20 which has been both resistance and support lately) 15.31, a double top at 15.49 and the 200 day moving average at 15.75. Support levels lie at 14.90, 14.73, the 100 day average at 14.61, 50 day avg at 14.52 and the HVL at 14.30.

We expect values to slip further in the coming days and don’t see much in the way of sugar fundamental news to support it. March may return to its old rough 14/15 range in the short term.