China Imports Less, Brazil Exports More – Sugar Tumbles
Sugar prices plunged for the fifth consecutive days on Monday as governments in China and Egypt are selling sugar out of their stocks to support domestic supply. Meanwhile, a strengthening Brazilian real has been encouraging Brazilian sugar producers to increase exports.
Due to domestically output declines in sugar plantations, which has happened to most sugar producing nations owing to drought brought by the El Nino weather pattern earlier this year, China had to gear up importing sugar from its neighboring countries such as Myanmar and Thailand. However, in the past few months, Chinese authorities have tightened controls over imports of agricultural products from Myanmar including sugar in order to fight with illegal cross-border trade.
The U.S. Department of Agriculture’s Beijing bureau recently trimmed its forecast for Chinese sugar imports in 2016-17 to 6 million tons, which is 1.9 million below the initial estimate.
To solve its own sugar supply issue, Chinese government has sold sugar from the state reserves. According to market sources, China’s fourth-quarter imports of raw sugar is expected to be under 350,000 metric tons, compared with 700,000 tons during the same quarter in 2015
Similarly, Egyptian authorities are pumping large amounts of sugar, both subsidized and free, into the market in a bid to control prices. Egypt has been facing a sugar scarcity due to an acute dollar shortage, which has cut imports and left the market short.
On Sunday, Egypt’s Supply Ministry raised its provision of sugar from 4,000 tons to 9,000 tons per day to secure the essential commodity, and said that the crisis is almost over. Egyptian authorities have so far seized 9,000 tons of sugar in raids on factories and warehouses, and forced temporary shutdowns on PepsiCo and Edita’s facilities. The sugar will be resold to the public at subsidized prices.
Adding to sugar’s woes, a decline in the value of the real versus the US dollar also contributed to selling. The Brazilian real has pulled back against the dollar since last Thursday. A weaker local currency makes dollar-denominated commodities more valuable. Therefore, Brazilian exporters have been increasing sales, which directly increases global supplies and pressures prices.
Fig: Sugar H4 Technical Chart
Sugar has broken out of the trading range, within which the commodity had been locked for more than a month. Sugar breached below the handle of 22.35 and is facing a dynamic support which is the long-term DMA50. The down side is being supported with RSI pointing downwards and wide gap between the +DI and –DI lines in the ADX chart.
Sell Stop at 22.00, Take profit at 21.20, Stop loss at 22.40