Sugar futures market rallies amid expectations of additional Chinese demand

Santos — The ICE October NY11 sugar futures market rallied on July 27 to settle at 12.12 cents/lb, up 6.04% on the day and at the highest settlement since July 7, when the futures contract closed at 12.18 cents/lb.

Market participants attributed the price spike to an additional import quota to be released by the Chinese government for 2.1 million mt of sugar.

In addition to the additional demand in the international market, sources were also considering the latest news about a drop in the Thai cane crush to near 70 million mt and an import quota into Indonesia for the last quarter of 2020.

Another bullish fundamental aspect was the recent upward movement in the white sugar premium, which rose from $88.58/mt on July 16 to settle at $98/mt on July 27. A higher white sugar premium is expected to increase the raw sugar demand from refineries.

Besides the bullish fundamentals, the macro environment was also supportive for the raw sugar contract, which is priced in US dollar and now has Brazil as the major supplier to the global market.

Brazil will be the largest sugar producer in the global crop 2019-20, which started in October 2019 and ends in September 2020, therefore, any volatility in the local currency against the US dollar has a large impact in the international price.

From July 1 to July 27, the value of the Brazilian real ranged Real 5.3334/$1 to Real 5.1666/$1, up 3.14% in the period, while the front contract ICE NY11 sugar futures dropped 0.41%.

In the Brazilian cash market, premiums remained unchanged on July 27, despite the rally in the future contract.

S&P Global Platts assessed VHP sugar for August loading FOB Santos at a 17-point discount to the October (V) future contract, up from a 32-point discount in the same period of 2019.