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“ Unfolding Sugar dynamics 6 months : Supply , Demand, Price”  

“ 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”  

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  1. “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

  2. Impact of Economy and currency on Global Sugar Prices • Perspectives on Global Economy • Perspectives on Currency • Perspectives on INR Vs USD

  3. EU = Bailout + Austerity + Stimulus “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

  4. Social Dynamics : Consumerism West to East West  East Matured  Emerging 1-1.5% Double Digit 4

  5. EM : Dilemma: Inflation Vs Growth : Downward spiral??? 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!!!! If NOT

  6. Currency Wars: New weapon: Amid weak demand High Bond Yields High inflation leading to rise in Interest rate + QEs + EM growth Vs Matured Economies More flows in to EMs Appreciations in EM currencies EMs Loosing Export competitiveness Intervention by EM policy makers

  7. Focus on China- USD Vs Chinese Yuan • Falling trade gap between US and China is great respite for China to overcome the global pressure about easing the currency trading band. • Nevertheless, falling exports, increasing in domestic inflation and to cool- off the asset prices, China is expected to keep its currency to appreciate with gradual pace for up coming two quarters

  8. India- Foreign fund Inflow and Widening trade deficits 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

  9. Long term Elliott wave of Dollar Index 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. 9

  10. 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. 10

  11. Sugar S&D Dynamics – Global and Indian • Review 09-10 • Global Supply & Demand Dynamics • Indian Sugar Supply-Demand Dynamics • Technical analysis • Summary and Price Outlook

  12. Why rally till Feb, Decline later and price gains again? Review 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

  13. Impact of Drought S&D Russia • Drought hit Russian production to dent 0.7 m.t in global supplies. • Import tariff kept at $140/ ton – imports to stay high and extend into JFM ‘11. • Brazil likely to offer for production deficit. • China: • Drought hit China production to dent 1 m.t in global supplies. • Beginning stocks staying low at 0.5 m.t shall aggravate imports

  14. Floods impact S&D • Receding floods towards beginning of harvest season • No major impact on production in Pakistan and Thailand. • Flood impact the highest in Australia. • Impact around 900 th.tons, which is 22% of Australian production and 0.56% of global production. • Exports likely to be hit to the tune of 0.85 m.t, which is 26.2% of Australian exports and 1.6% of global trade. • Trade waiting for India to fulfill export lacuna from Australia

  15. Rising demand from Indonesia & Philippines S&D • Expected decline in Indonesian production by around 5% and Indonesian domestic demand growing at 2.5% shall keep imports high. • shall continue to source most of imports (85%) from Thailand. • Cumulative rise in import demand from Indonesia and Philippines to stay at 0.16 million tons

  16. Brazilian cane and sugar crush (units in m.t) S&D • Declining pace of cane crush in Central-South – Nov 2nd half production declined by 28% • Likely longer inter-harvest period. – many mills closing operations. • Beginning of cane crush from Apr ‘10 likely to witness a higher cane diversion to sugar.

  17. Brazil - Ethanol/Gasoline Ratio S&D • Declining cane crush – to support sugar and ethanol prices. • Expected rise in ethanol price and stable gasoline price – to keep E/G ratio higher for Q1 ‘10. • Higher E/G ratio might curtail retail ethanol blend in flexi-fuels. • However with expected rise in crude oil prices during May-June, demand and thus price for ethanol might improve.

  18. Refined-Raw Spreads • Spreads are narrowing from the peaks of $120 during June 2nd week. • Might narrow further, with Indian exports of white sugar.

  19. Global balance sheet • Decline in S/C ratio from previous estimates, but still higher, compared to previous year. • Downward revision in production remains open – leaving scope for further tight supplies.

  20. Indian State-Wise Scenarios • Cane area in India at 50 lakh ha, a rise of 19%. • Heavy rains during ripening phase leading to water shoot developments. • Indian Per hectare yield might remain higher at 72 tons/ha, a rise of 5%, however recoveries lower

  21. Indian State-wise contd.. • Recovery rates, so far are lower by around 50 basis points compared to last year • Expected to improve. Overall Indian recovery likely to stay at 10.7 vs. 10.8 during previous year. • Expected rise in production across, but decline from initial estimates in UP. • Indian production likely to stay at 24.3 m.t.

  22. Indian sugar Balance Sheet • Exports beyond the currently allowed 0.5 m.t might keep supply scenario tight. • Further exports, above 5 lt, not likely immediately • However, 2011-12 production at India and globally might resume to above current levels, moderating prices during second half of 2011.

  23. Technical View 23

  24. ICE sugar Futures, Preferred wave count Long term 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.

  25. ICE sugar Futures, Preferred wave count Short term 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.

  26. Liffee Sugar Futures preferred wave count 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.

  27. LIFFEE Sugar futures and ICE sugar futures spreads 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.

  28. Sugar S 30 Kolhapur Momentum Setup 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.

  29. Summary of the analysis Summary 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. • Indian exports shall support domestic prices • Might keep global prices subdued only for the short term. • Indian exports might not suffice the recent deficit of 3.2 m.t. • Further, Inter-harvest period in Brazil shall support global prices. • However, higher global production next year and cane diversion to sugar to soften H2’11 prices. Slowing cane crush in Brazil Longer inter-harvest period Floods extended into December. Sharp production decline expected- to the tune of 28%.

  30. Holistic View … 30

  31. Thank you for your attention TransGraph Consulting Pvt. Ltd. # 6-3-655 / 2/1, A.P. Civil Supplies Bhavan Lane, Somajiguda, Hyderabad – 82, Tel: +91-40-30685001-04: Facsimile: +91-40-30685002 E-mail: services@transgraph.com; mktg@transgraph.com www.transgraph.com 31 31

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