Sugar prices slid at the open on Tuesday after data showed Indian production running well ahead of last season following an earlier start to the harvest. Profit-taking also added to the decline. Raw sugar futures in New York fell as much as 3.5% to their lowest price since late September, while white sugar dropped in London.
India had produced 845,000 tons of the sweetener as of Oct. 31 this season, more than eight times the amount produced in the same period last year, according to data from the National Federation of Cooperative Sugar Factories Ltd. That could indicate lower reliance on imports, at least in the short term. India is ramping up production to keep domestic prices in check at a time when stockpiles are low. Still, cumulative output is expected to remain weak amid fears that a super El Niño will curb yields and push the global sugar market into a deficit.
Delhi-based analyst Harsh Soni of Greenleaf Consultancy said the strong start to the season was not a surprise. "But when reality strikes, markets react," he said. Speculative funds had piled into sugar over recent months, sending the sweetener to multi-year highs. That rally has shown signs of reversing, however, as a surprise presidential election victory for incumbent leftist Luiz Inácio Lula da Silva triggered a selloff in the Brazilian real and added to bearish sentiment. The latest CFTC report showed money managers trimmed their net-long position by more than 40,000 lots to around 180,000, a four-week low.
Pierre-Jean Chiaradia, commodities portfolio manager at Singapore-based Conda Capital Pte Ltd., said the October rally was driven more by speculative flows and weather-related risk premiums than by genuine physical tightness. He added that the sell-off risks being exacerbated by a lack of buying at lower prices. Arnaud Lorioz, chief executive officer of Paris-based brokerage Deepcore, said speculative funds with large long positions were stopped out after the sweetener sank with the currency. "When you look at the fundamentals, nothing has changed," he said. "The question is at what time this snowball effect loses momentum."
Source: Bloomberg Markets · Summarized by HeadlinesBriefing