Refined sugar futures in Mumbai decline a 2nd day on speculation govt subsidy for raw sweetener exports will be less than sought by industry, says Indranil Mukherjee, an analyst at Religare Commodities.

February-delivery contract tumbles to intraday low of 2,65 rupees per 100 kg on National Commodity & Derivatives Exchange, lowest for most-active futures since March 2012

 “Mills won’t be able to liquidate stocks. Amount of subsidy won’t help exports as international sugar prices are also going down”: Mukherjee

NOTE: Raw sugar reaches 43-mo. low in New York

“If there is no parity it will be very difficult to find buyers. Surplus in the domestic market will not reduce:” Mukherjee

Eoin Treacy's view

Declining prices across commodity exchanges not only in the USA and UK but also in China suggest sugar’s oversupply remains a considerable factor for the global market. However, if India’s export subsidy acts as a disincentive to increase global supply, that may be as a bullish catalyst for international prices to bounce.

An additional medium-term consideration is that farmers will seek to plant the crop they are likely to make the most money from. Less sugar will be planted this year. This will eventually have an effect on the excess inventory situation which will be complemented by low prices encouraging consumption.

White Sugar prices have been falling steadily for nearly two years and the pace of the decline has picked up over the last couple of months. If we assess the consistency of the downtrend, we can see that even though prices have more than halved since 2011, a number of sharp short-term rallies have unwound overextensions relative to the trend mean. The 200-day MA has also represented an area of resistance where these bounces have tended to peter out.

Prices are now approximately 15% overextended relative to the MA following a persistent decline and are now testing the psychological $400 area. This region also represents the upper side of the long-term base and potential for a reversionary rally has increased. White sugar posted an upside key day reversal today. It has posted similar one day rallies in each of the last two months, so follow through tomorrow and the day after would help confirm the signal. New York listed Sugar also rallied today though not to the same extent as the London contract.