Sugar prices ease on commods setback, supply outlook

Arabica coffee on ICE was little changed while cocoa edged up but remained well within its recent trading range.

"It's oil and dollar (driving prices down). Sugar has really suffered from oil prices coming off," said VTB Capital analyst Andrey Kryuchenkov.

Oil, copper and wheat prices slid on Monday as investors abandoned commodity markets, fearing weaker economic and demand growth, a stronger dollar, a Greek debt default and potential contagion effects.

Dealers said the failure of October raw sugar on ICE to break key resistance may have sparked chart-driven sales.

"It may be the case that the inability of Oct NY to breach a double top at 26.31 cents causes a re-think by the spec community eventually, especially if this level remains inviolate at the July expiry later this week," brokers Sucden Financial said in a market note.

The July raw sugar contract expires on Thursday.

Barclays Capital analyst Sudakshina Unnikrishnan said in a report that sugar prices had gained recently on bottlenecks at ports in Thailand and a slow start to the harvest in Brazil.

She noted, however, that acreage in top consumer India had expanded and the government last week approved the export of another 500,000 tonnes.

"With India moving further into the export side of the equation and the global market moving further into a surplus, we see signficant gains in sugar prices through H2 as being capped," she said.

"Therefore, despite the recent move up, we continue to expect front-month prices...to ease through H2 this year on higher supply prospects," she added.

GLOBAL SURPLUS

A report by ABN AMRO/VM Group on Friday saw the global sugar market swinging into surplus in 2011/12 following a small deficit in 2010/11.

October raw sugar on ICE was off 0.51 cents or 1.96 percent at 25.49 cents a lb at 1432 GMT while August whites on Liffe were down $11.60 at $723.00 per tonne.

ICE cocoa futures were higher but remained rangebound after recent failures to breach a key resistance level.

September was up $14 or 0.5 percent at $2,978 a tonne. The contract has tested resistance around its 200-day moving average, which currently stands at $3,059, several times in the last few weeks but failed to close above it.

"The 200-day moving average is proving a massive hurdle," one London dealer said.

On the downside there is support around its recent low of $2,868 a tonne set on June 3.

Prices on Liffe were also higher with September up 20 pounds at 1,901 pounds a tonne.

Dealers said initial resistance was provided by a downtrend line at 1,924 pounds and a breach of that level could spark a run-up to test the 200-day moving average of 1,989 pounds.

The scope for a significant run-up in prices may, however, be restricted as the market continues to struggle to digest the flow of cocoa out of Ivory Coast which was delayed by the recent conflict in the commodity's top producer.

Robusta coffee futures on Liffe edged up with trade dominated by rolling forward of positions out of July which becomes tenderable on Friday.

Dealers noted the front month was trading at a discount of around $33 to September despite concern about possible tightness later in the season.

Top robusta producer Vietnam is between crops and European stocks are in strong hands, dealers said.

ICE arabica coffee futures were barely changed with September off 0.10 cents at $2.5040 per lb.

Copyright Reuters, 2011