Sugar Falls as Demand Concerns Emerge
05 Dezember 2016 - 09:35PM
Dow Jones News
By Carolyn Cui
Sugar continued to slide Monday, hitting a fresh four-month low,
as traders turned their attention to sluggish demand as the
Brazilian harvest season was close to the end.
Raw sugar for March delivery skidded 0.9% to settle at 18.94
cents a pound on the ICE Futures U.S. exchange, the lowest level
since early August.
After hitting a four-year high in early October, sugar has
slumped about 20% in recent weeks, a remarkable reversal for a
commodity that was until recently a hot market among traders.
"Everything seems to be conspiring to depress the market; weak
physicals, low white premium, high non-index funds' long, and now
doubts about Chinese imports and a new technology which may depress
demand long term," wrote analysts with Marex Spectron in a note to
clients.
Speculators, who had held a record net-long position until
end-September, have been reducing their holdings since then. A
Friday's report from the U.S. Commodity Futures Trading Commission
showed money managers further slashed their bullish bets in the
week ended Nov. 29 to 168,635 lots, a 41% reduction from the
peak.
Many traders had relied on the idea that the global sugar market
was set to be in deficit in 2016 for the second year in a row, but
analysts argued that they had been ignoring all the vagaries in the
macro market and sugar fundamentals that have gradually eroded
sugar's bullish story.
In Brazil, the largest sugar grower, the 2015-2016 season is
approaching the end, with the final production figure close to 35
million tons. Opinions vary as to next year's crop, as its
increased planting area is expected to be offset by lower yields.
At the same time, the percentage of cane used to make sugar is
expected to increase considerably, if the current price
relationship between sugar and ethanol holds.
China, the world's largest sugar importer, has indicated that
they may restrict 2016/2017 official imports to about 1.8 million
tons. "If true... it would mean that official imports would be
about 1.5 million tons less than we had anticipated," Marex
Spectron analysts wrote. Demand has already fallen in other
countries such as Sudan and Egypt due to shortage of dollars.
Analysts also noted Nestle S.A.'s announcement that it has
developed a process by which the same amount of sugar can give 40%
more sweetness to products like chocolate. "This would call into
question the main bullish factor in sugar -- that whereas world
production tends to stagnate, world consumption grow by about 2.5
million tons every year," Marex Spectron wrote.
In other markets, cocoa for March edged down by 1.2% to close at
$2,367 a ton; arabica coffee for March was down 0.9% to $1.4450 a
pound; frozen concentrated orange juice futures lost 0.3% to end at
$2.2010 a pound; and March cotton edged down 0.04% to 71.01 cents a
pound.
Write to Carolyn Cui at carolyn.cui@wsj.com
(END) Dow Jones Newswires
December 05, 2016 15:20 ET (20:20 GMT)
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