Sugar Futures may decline on weak demand: Angel Commodities

Angel Commodities has come out with its report on Sugar. According to the research firm, Sugar Futures are expected to correct on account of higher supplies and weak demand in the domestic.

Sugar:
 
Sugar March contract declined sharply after witnessing some short coverings in the preceding two sessions. Prices had recovered on the back of reports of partial decontrol. However, higher production and availability in the domestic markets and comparatively lower demand amid winter season pressurized prices sharply. The Spot as well as the Futures settled 0.53% and 1.36% lower on Thursday.  Out of the estimated 24 mn tn sugar output for the season 2012-13, Indian 13.7 mn tn in the first four months of the season beginning October 2012, up 3 percent a year ago period.  India has fixed FRP (Fair and Remunerative Price), the price sugar mills must pay to cane growers at 210 rupees per 100 kg in the 2013/14 year, compared to current year’s 170 per qtl. Higher floor price increases the cost of production as the raw material cost constitute the major part of cost of production of sugar. This should actually increase the prices of sugar.

In the international markets, ICE Raw sugar fell to their lowest level since August 2010 to 18.46 cents in the last week expecting third consecutive year of global surplus in 2012-13.  A third consecutive global sugar surplus will trim prices as supply is forecast to exceed demand by more than 8 million tonnes in the crop year to September 2013.  Markets would need weather scares or bullishz ethanol policy changes in Brazil to encourage new longs. Otherwise, prices will remain depressed.  Brazil's main center-south cane crop will produce between 580 million and 590 million tonnes of sugar cane in 2013/14. Brazil will likely favor ethanol production over sugar from the 2013/14 cane crop.  

Outlook:
 
Sugar futures are expected to correct on account of higher supplies and weak demand in the domestic. However, industry expectations that the government may take some steps to protect the industries and it may do away with the non-levy sugar mechanism may support prices at lower levels. The hike in cane price and thereby increase in sugar production cost may also support prices as this may force government to take some measures to increase sugar prices.

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