February 27th, 2017

By João Paulo Botelho and Loredane Pereira

Week begins with declines for sugar futures

In today's trading session, the last before the expiration of the March contract, the front month raw sugar contract declined 3.6% on last Friday close to USD 19.09/lb on the ICE/NY. In addition to this decline, the quote of white sugar on the London commodity exchange registered a decline of 2.6%, accounting for USD 528.2/T.

One point that can be seen as bearish for raw sugar quotes is the volume of open contracts on the March/17 contract, which recorded 35,869 lots last Friday, prompting market agents to project a large volume of delivery via the exchange. Analyzing the relationship between the number of open contracts with 3 sessions until maturation, along with volume of sugar delivered via the commodities exchange in recent years, it is estimated that deliveries on the March contract are close to 17,900 lots, or just over 910,000 tonnes of sugar.

Open contracts and deliveries via the commodities exchange - ICE/NY

Source: ICE/NY. Design: INTL FCStone

It is worth remembering that currently on the physical market in the Brazilian Center South (the largest sugar producing region in the world) the latest index of premiums/discounts on ICE/NY being traded for VHP FOB Santos was close to the flat for deliveries both for March and April, suggesting little incentive for sellers to deliver product via the commodities exchange.

With that, there were rumors in the market that, should deliveries occur through the commodities exchange, the sugar could be of lower quality, which would find some difficulty in being traded on the physical market; or would originate in other regions of the world.

Following this bearish trend for the March contract, the spread between the two nearest contracts showed a rise from 1 to 6 points of charge. In addition to that, the spread for white premium between the two exchanges, taking the May contracts into consideration, rose slightly further on Monday to USD 106.02/T.

In the field of fundamentals, the most recent data for the Thai 2016/17 crop was published today, where the accumulated figure until February 23rd showed a decrease of 10.1% in sugarcane grinding year-on-year, accounting 65.6 million tonnes. Total production in gross value presented a reduction of 5.9%, closing at 6.9 million tonnes. However, it is important to note that the indexed difference between the crops is decreasing, mainly due to the better rate of recovery this year (10.6%).

Crop Monitoring - Thailand (by 2/23)

Source: OCSB; Design: INTL FCStone

 

Petrobras announces reduction in gasoline prices at refineries

Last Friday (24), Petrobras announced an average reduction of 5.4% in the price of type-A gasoline at refineries, effective as of last Saturday (25). For Diesel oil, there was a relatively smaller reduction of 4.8%. With the state's new pricing policy of periodic revisions for their prices at refineries, the main reasons for the decline from the previous revision were based on the appreciation of the national currency, lower sea freight levels, and adjustments carried out in the company's competitiveness on the domestic market.

Meanwhile, the price of US Gulf conventional gasoline in Brazil had a decrease of 1.5% between the average of last week and the average of the week prior to the last change in the price of gasoline and diesel oil, which occurred on January 26th.

For end users, gasoline is expected to average 2.3% cheaper following the readjustment downwards, or BRL 0.09/L, according to Petrobras.

Type-A gasoline prices in Brazil (BRL/l)

Source: OPIS; BCB; MME. Design: INTL FCStone

 

Prices - Sugar

 

Prices - Ethanol

 
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