SOFTS-Sugar plunges on washout fears; cocoa, coffee fall

Thu Oct 11, 2012 6:33pm GMT
 

* Sugar sinks almost 4 percent

* Cocoa plumbs end-July levels, coffee hits one-month lows

* Reuters poll points to fall in China sugar imports

* Cocoa grind seen beginning to rebound in fourth quarter (Updates prices; adds details in 4th paragraph)

By Nigel Hunt and Josephine Mason

LONDON, Oct 11 (Reuters) - Raw sugar futures on ICE plunged almost 4 percent on Thursday as funds and speculative investors continued to liquidate positions amid talk that importers may be cancelling cargoes.

Coffee hit one-month lows and cocoa plumbed levels last seen in July amid plentiful supplies and sluggish consumption.

Reinforcing concerns about weakening demand was widespread talk about sugar washouts - where buyers give up the obligation to take delivery by paying a penalty - which centred on China and India, dealers said.

Buyers may be walking away from hundreds of thousands of tonnes worth of contracts after sup ply concerns that sent prices a s high as 24 cents a lb in mid-July d i ssipated. Prices ha ve since plunged 15 percent.

"This is a technical breakdown precipitated by rumors of washouts not yet confirmed. Washout talk generally filters down after the fact, but where there's smoke, there's fire," said Michael McDougall, a vice-president for brokers Newedge USA.

Dealers also cited the absence of China as further evidence of weakening destination buying. Imports by the world's largest sugar consumer may drop by as much as half in the season to September 2013 on rising domestic output, competition from substitute sweeteners, high inventory and a slowing economy, a Reuters poll showed on Thursday.

March raw sugar on ICE settled at a one-month low, down 0.81 cent, or 3.81 percent, at 20.45 cents a lb, after selling accelerating as prices pierced a string of short- and long-term moving averages.

Dealers suggested further declines will encourage more liquidation by speculative and fund longs.

"Lower import demand overall, especially from Russia and China, remains a drag on this market, and production growth elsewhere will still lead to another surplus globally," Kona Haque, Macquarie analyst, said in a market note.

Haque said, however, she believes the balance of risk was for prices to rise from current low levels, noting the risk of further deterioration in the crop outlook in India as well as lower production in Thailand and Europe.

"The re-stocking process continues, and until it is completed, prices will remain vulnerable to any unforeseen supply - principally weather-related - shocks," she said.

December white sugar on Liffe fell $22, or 3.70 percent, to $568.4 per tonne.

Dealers awaited an update on ICE's controversial raw sugar trading hours, which were up for discussion by the exchange's sugar committee, scheduled to meet at 0830 EST (1230 GMT).

RISING STOCKS

Arabica coffee futures were lower for a third straight session, with the market weighed down by plentiful supplies and rising stocks.

December arabica coffee futures on ICE fell 1.65 percent to $1.6075 per lb, their lowest level since Sept. 6.

Dealers said a run-up in prices earlier this month encountered decent Brazil selling above $1.80 per lb with the market currently well supplied.

ICE certified arabica stocks continued to climb and stood at 2.253 million bags as of Oct. 10, following a prolonged increase from barely more than 1.5 million bags in early May.

"It is no great surprise to see the market give up the ghost and head back down to these levels," one London dealer said.

Robusta coffee futures on Liffe fell, with November settling 1.05 percent lower at $2,076 a tonne.

Trading houses offered beans from Vietnam's new crop at discounts to London futures this week, but Indonesian robustas returned to premiums despite a lack of interest from roasters, dealers said on Thursday.

Pressure mounted on cocoa as the market braced for weak third-quarter grind data for Europe and North America next week. A key indicator of demand for chocolate's key ingredient, analysts expect the data to show large year-on-year declines.

After piercing its 100-day moving average, ICE December cocoa futures fell to lows last hit on July 31, with the next technical support - its 200-day moving average at $2,341 - preventing further losses.

December recovered some ground to settle down $21, or 0.9 percent, at $2,351 per tonne.

A London-based cocoa futures broker said market consensus was for roughly 15-20 percent lower year-on-year third-quarter European grind data.

"You won't get a reaction in the market unless the data comes in over 20 percent down, or less than 10 percent down," the broker said.

Falling chocolate demand in Europe due to the economic crisis is expected to cut the continent's cocoa grinding in the third quarter.

Dealers noted, however, that the global trend may show only a marginal decline and there were signs there could be a modest recovery in the fourth quarter.

March cocoa futures on Liffe settled down 16 pounds, or 1.04 percent, at 1,527 pounds a tonne. (Additional reporting by David Brough; editing by Keiron Henderson, Jim Marshall and John Wallace)

Market Update

  • Africa
  • US
  • Europe
  • Asia
UK £ USD =1.6807
Euro USD =1.3830
Rand USD =0.0955