“ Unfolding Sugar dynamics 6 months : Supply , Demand, Price” . By Mr. D. Anil Kishore AVP– TransGraph Consulting Pvt. Ltd 18.12.2010 at The Tefla’s Sugar Summit. Impact of Economy and currency on Global Sugar Prices. Perspectives on Global Economy Perspectives on Currency
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“Unfolding Sugar dynamics 6 months : Supply , Demand, Price”
Mr. D. Anil Kishore
AVP– TransGraph Consulting Pvt. Ltd
18.12.2010 at The Tefla’s Sugar Summit
“Export Inflation to world”
High Public Debt amid low GDP growth
Difficulty in servicing debts
Need for Bailouts
Leading to Austerity Demands
High Un-employment + Lower GDP
Double Digit “ food Inflation”
Another global de-growth?
Rising Global Commodity Prices due to QEs
Who would US export to?
More inflation Risk in EMs
Lower immediate growth in EMs !!!!
if More Controls from Central Banks
Long term growth is concern!!!!
High Bond Yields
High inflation leading to rise in Interest rate
EM growth Vs Matured Economies
More flows in to EMs
Appreciations in EM currencies
EMs Loosing Export competitiveness
Intervention by EM policy makers
Amplified to widen the Current Account deficit despite sustain pace of invisible account US Dollar inflow, while putting pressure on INR
The economic growth fueled to widen the trade deficit
Foreign capital inflow (via equities, debt and long term investment) in search of better return on investments are supporting INR to overcome the account deficit pressure
The dollar is currently running in a secular bear trend since 121.03 July’2001 high in an A-B-C form of Primary wave decline. The 70.69 March’2008 low is said to have formed A-primary wave and the rally there after is however constrained within a broad range of 89.62-70.69, which could form into a triangle. As visible from the pattern the bounce from Oct’10 lows of 75.61 is expected to form a part of a 5-leg consolidation to form B-primary wave to test 85-88 levels over the coming 3-4 months before forming basis for weakness again.
As presented on the chart above, dollar and sugar price movements seldom move in tandem all the time. But this cyclical nature of correlation may be observed on a 100-Day Time frame, where the correlation inverse/positive matures near the end of the correlation band viz 1,-1. In this instance the inverse correlation was noted from March’2010 onwards, but once the correlation matures near -1, then the sugar price and dollar may gradually move in the same direction.
USDINR Preferred Elliott Wave Count
USDINR spot prices exhibiting weak momentum after a bounce from INR 43.81(posted in Nov’10) towards INR 46.11(posted in Dec’10) and currently hovering at INR 44.96. From Elliott wave perspective, minor wave x of Intermediate wave C of Primary wave 2 is concluded at INR 47.145. At present, prices are in the process of minute wave b of minor wave z of intermediate wave C, the target for the same is pegged around INR 46.50. Eventually, prices turn weak to commence minute wave c, which would pull the prices below previous low of INR 43.81. However, the target for the minor wave z is pegged within the range of INR 43/42.50. Moving forward, prices are likely to hold the resistance of INR 46.50/46 and witness gradual weakness towards INR 43/42.50 in the coming 4 – 6 months.
Why rally till Feb, Decline later and price gains again?
Policy measures by Indian government in Feb, viz., stock holding limits on bulk consumers and time-lines on millers for selling quota .
Drought impact in China-Production declines
El-Nino led impact in Thailand
Drought in Australia
Debt concerns in Euro zone, however supportive fundamentals viz.,
Drought in Russia
Dry weather in Brazil
Firm spot demand
Absence of Indian exports
Unfavorable climate in Brazil-floods during crucial Sep-Nov’09 period impacting yield and recovery
Better than anticipated tail-end production in India, with final estimate for ’09/10 at 18.8 mt, higher from around 16.8 mt anticipated in Dec ’09.
Expected production decline in India for second consecutive season of ‘09/10
Huge Indian imports – duty free policy
ICE Sugar futures-continuous prices -USc/Lb
ICE Raw Sugar’s new rally beginning from 13.00 cents (May’10) has formed a strong impulse rally which gives an impression of a new bull rally is in place. The recent correction of this bull trend from 33.39 cents has formed the 4th primary wave and has held above the semi-log trend line. Hence, the ensuing rise is expected to form the 5th primary wave which may surpass 33.39 cents (Nov’10 high) and rally towards 36.00 cents in the coming 4-6 months.
Deciphering the broader wave structure, there are ample indications of the trend structure to be bullish. The weakness from 33.39 cents is currently a phase of bull trend correction which seems to have ceased near 25.30 cents. The recent recovery from 25.30 cents could be considered as an initiation of the 5th primary wave and 3rd intermediary wave in the making. In this case the corrections are unlikely to fall below 26.00 cents and could continue to exhibit a positive trend.
The existing uptrend (beginning from $421.20 May’10) is trending in its cyclical wave 1 and unfolding in a 5-Wave impulse trend. The most recent weakness coming off $812.90 is forming 4th primary wave and a prelude to 5th Primary wave impulse. As the trend has made higher low near 648 (Nov’10 low) a rally towards $850-900 could be seen over a gradual course of 4-6 months to form the 5th Primary wave.
The 10-Month Rate of Change momentum indicator has successfully depicted turnarounds in the spreads of LIFFEE Sugar and ICE sugar futures and in the current instance as well, the momentum has already turned around. This implies the widening spreads of white sugar over Raw sugar has made a turnaround and hence reduced price spreads over the White sugar.
Sugar S-30 Kolhapur, has made a double bottom reversal in early Nov’10 and has continue to display positive trend developments. The most recent rally from INR 2276 has risen above its moving average setup of 21/55-Day SMA. The momentum in 45-Day Rate of Change and 14-Day RSI is positive which may sustain the trend on the higher side. Considering any weakness unlikely to fall much below INR 2600 over 3-4 months and the structural bias of the trend is bullish towards 3400.
China-drought impact on cane crop – to the tune of 2 m.t
Chinese imports to rise sharply (higher by 60% so far )
State reserves only 500 th.tons.
Russia – Drought impact on production to the tune of 13.9%
Deficit to be met by higher imports
US production 3% better than anticipated.
Lesser than anticipated impact from Hurricanes in Mexico. Production so far higher by 270 th.tons.
Beet sugar recovery in Germany lower - at 17.25% vs. 18.23% during Dec ’09.
Final production might stay slightly lower by 0.5 m.t
Thailand production started in Nov. lesser impact from floods .
Thai premiums steady. (at $50 for Mar-may deliveries and 100 for immediate deliveries)
Indian Sugar production so far higher by around 21.5% so far (460 th.tons)
Yields could be higher, but recovery rates lower
Exports shall support domestic prices.
Slowing cane crush in Brazil
Longer inter-harvest period
Floods extended into December.
Sharp production decline expected- to the tune of 28%.
Holistic View …