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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