Sugar
The Intercontinental Exchange (ICE) saw raw sugar prices fluctuating at a high level in the week ending on 17th February. Based on the recent events it is expected that India may not issue additional export quotas, while heavy rainfall in central and southern Brazil has led to worries about sugarcane crushing leading to delays and sugar decline. For the March contract which will expire at the end of February, the 3-5 contract spread widens to a high level of 1.61 cents/lb.
India
The Indian government may hold a conference call in March 2023 to determine if sugar quotas should be increased, as of date, the market is closely monitoring the Indian sugar production situation after the ISMA 22/23 forecasts by the Indian Sugar Association had expected that sugar production estimates have been sharply lowered. This was amid concerns that the government may discontinue new sugar exports for the next session, which may adversely cause threats to the country’s domestic supply.
Brazil
Brazil is currently in the rainy season, but sugar cane crushing production remains low. Although Brazilian sugar mills have a strong incentive to start early in terms of current sugar prices, this is largely dependent on the weather. If precipitation in March and April remains large, sugar mill pressing, and sugarcane sugar may be affected. In addition, Brazil’s large exports of soybean and corn, which have been recorded this year, will crowd out port logistics resources, and Brazilian sugar may be difficult to export smoothly. Overall, the tight supply of international raw sugar trade flows is expected to continue, however, better rainfall may make international raw sugar trade flows abundant in the second half of the year.
ICE Exchange
The ICE raw sugar March contract is about to expire, based on this contract, the intentional raw sugar spot supply is tight, and this is likely to support and maintain high price levels. However, under the expectation of loose supply in the second half of the year, the momentum of the external price increases will be limited, and short-term volatility will remain dominant.
China’s Sugar
Zheng Sugar is still operating at around 5900 last week, and the high level of the external market provided strong support for China’s market. The harvest in Guangxi accelerated, causing various industry institutions to lower domestic sugar production estimates. Spot quotations in the production area increased slightly, Guangxi Southwest China Group reported 5830-5880 yuan/ton, up 10 yuan/ ton from the previous week.
In the current off-season, a negative basis attracted traders to purchase interest.
Cotton
With lower overall risk appetites in the financial markets, a stronger U.S dollar index, and concern about demand, ICE cotton prices fell back last week. The May contract approached 80 cents on the line.
Market Conditions
From the US, Fed’s hawkish outlook was faced with better-than-expected economic data and inflation data. This had led to market concerns that the FED will continue to raise interest rates. Overall, the sentiments of the external financial market weakened, and the dollar strengthened. Coupled with the heightened tension between China and the United States, and the downward pressure on the global economy, it has led to worries about cotton consumption. Fundamentally, as of the week of February 9, 2023, US onshore cotton exports in 22/23 achieved a signed contract of 49,200 tons, down 17.46% weekly, of which China signed 14,000 tons. The weekly export signing volume of is the highest since this year, and the demand has rebounded significantly from the previous 11-12 months, but compared with the same period of previous years, as it is at a medium level.
With market concerns about demand under the pressure of the global economy facing the risk of recession and the destocking of US textile and apparel channels, it remains difficult to dispel market concerns. The operating rate of Asian textile enterprise has rebounded, but it is still low compared with the same period of previous years. Additionally, the recovery of cotton yarn demand remains limited, while events such as Pakistan’s foreign exchange shortage and Turkey’s earthquake will also affect more of the imported cotton demand.
Supply Side Outlook
For the supply of cotton, Indian cotton listing is still slow, the current cumulative listing volume is still nearly 40% behind the same period last year. USDA, CAI and other institutions have successively lowered the 22/23 Indian cotton production estimate, and the impact of farmers’ reluctance to sell in the market remains a factor of influence on the market. The country’s tight supply of cotton and firm prices will also be detrimental to the recovery of consumption. The February 23-24 USDA Outlook Forum will give a preliminary outlook on U.S. and global cotton planting, supply and demand balance sheets for 23/24, and the current international agency expects the area planted with new U.S cotton crops to decline 9 – 11.5 million acres.
Otherwise, in mid-February, the National Cotton Federation (NCC) expects the intended cotton acreage in the United States to decrease by 17% year-on-year to 11,319 million acres next year. Looking into the forum’s estimate of the area, if the area of planting cotton is estimated to be above 11 million acres, it is expected that it will be difficult to generate more benefits to the market.
From China, as of February 16,2023, the total amount of lint cotton processed in Xinjiang was 5.2417 million tons, an increase of 4.45% year-on-year. In 2022/23, Xinjiang’s regulated cotton inspection volume was 5.1426 million tons, an increase of 0.86% year-on-year, turning from negative to positive.
Overall, global supply and demand is expected to tighten in 2023/2024 but it is still too early to form a sustained push in the short term, similarly it this will limit the room for the prices of U.S cotton to fall. While the soil moisture in the eastern part of the U.S cotton planting is good, the largest producing regions still face arid weather conditions. Given the interval between the current planting to the next planting period, there are still variables in the weather, which should also be taken into consideration.
Cotton Prices
For upstream factories, the spot price of cotton fell with the futures prices last week. It is reported that at present, the speed of sales of Xinjiang plants has increased, it is estimated that about 7~8% of the cotton from small and medium-sized plants have been contracted for the sales of cotton.
On the whole, the current low cotton tarn inventory of domestic textile enterprises and the expectation of the “gold and silver textile season” (“金三银四” 纺织旺季) may bring certain restrictions on the downward trend of cotton prices, the total storage fee inclusive of the plant acquisition and processing is estimated to be about 14,000 yuan/ton, which will be a support in the short term.
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