• The market remains range bound between 12-13.5c/lb in 2019.
  • Physical buying and a lack of spec interest in adding to shorts have supported the market at the bottom of the range.
  • We worry that the floor to the market is less robust than the ceiling. 

Breakout Lower More Likely 

  • The market has been range bound between 12-13.5c/lb in 2019.
  • Whilst there is still good order flow to come from the buy side, it is significantly outweighed by the producer pricing left in 2019.
  • As such we believe the market is more susceptible to a breakout lower, potentially finding increased buying interest coming in from China and toll refiners. 

Range Bound No.11 

China 

  • Chinese import parity is positive at current levels, but recent Chinese bids suggest the market needs to be sub-12c to really encourage more demand.
  • This is because there is a lack of clarity over how many raw sugar AIL import licences the government will issue, and when they will be released, which has made Chines refiners hesitant to buy so far in 2019.
  • There is also added uncertainty from Brazil’s WTO challenge over how China administers its import programme. 

Chinese Buying Provides Soft Floor  

Global Raw Sugar Demand 

  • Raws demand has been very slow recently; in the past 9 months CS Brazilian raws offtake has been 400k tonnes per month behind expectations. 

Year on Year CS Brazil VHP Offtake Loss by Destination 

  • We estimate global raws demand to have declined by 3.7m tonnes in 2018 compared to 2017 and currently expect it to remain sluggish throughout 2019. 

Global Raws Demand 

  • We estimate most toll refiners require $80-100 over the No.11 to be profitable.
  • We also estimate that at current domestic prices, Indian refiners can buy local sugar and offer it onto the world market as refined at $330 – $350/mt.
  • Therefore, at a best-case scenario, toll refiners will look to buy raw sugar at close to 12c; a less aggressive calculation could see buying interest emerge sub-12c. 

Speculative Position 

  • Another factor to the market floor is the current spec position of -77k lots net short. 

Net Spec Position 

  • We haven’t yet seen spec appetite to extend back towards the record short of -189k lots net short, last seen in September 2018.
  • Recent order flow has shown that approximately 750 lots of selling is required for the market to decline by 1 point.
  • If we see specs move back to a record short position, we believe the market could fall towards 11c/lb.