Raw sugar slumped from a 17-month high, as expectations that India would need to make sizable imports eased amid government measures to free up more supplies for the domestic market.
Futures slid as much as 4.8 per cent in New York, the most since May. Prices jumped more than 21 per cent last month — climbing into overbought territory — due to supply tightness in the second-largest producer and projections for a global deficit in the upcoming season.
The rally was underpinned by India’s move to allow up to 1 million tons of duty-free raw sugar imports, but weakening domestic prices have since tempered expectations for overseas purchases, Rabobank said in a report.
The government this week further tightened limits on how much sugar can be held by dealers in an effort to curb hoarding and boost domestic availability. The measures have helped push more stockpiles onto the market, according to Rahil Shaikh, managing director of MEIR Commodities India Ltd. He expects the country to import about 500,000 to 600,000 tons.
“Prices in India have softened because government measures imposing stock limits have made sure that stockpiles in the pipeline have been flushed out,” he said. “The country still has serious supply constraints.”
Sugar’s advance had pushed its 14-day relative-strength index above 70 recently, which can suggest that prices have gained too fast, while the short-covering that helped propel the rally is fading, leaving prices more vulnerable to selling. Also, sugar has become significantly more profitable than ethanol in top grower Brazil, potentially encouraging mills to divert more cane toward making the sweetener.
Still, the sugar market is expected to see a sizable deficit as the El Nino weather pattern threatens output in key growers in Asia, while drought in Europe curbs output.
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