Thai sugar premiums are likely to stay near their 9-month high levels this week as strong Chinese demand helps offset abundant global supplies, while coffee premiums could be dictated by sales from top robusta producer Vietnam, dealers said on Monday.
Thai raw sugar premiums have jumped to their highest level since August last year at 180 to 190 points to New York's front-month July contract, partly due to short covering after global prices tumbled to 21-month lows. Thailand is the world's second-largest sugar exporter after Brazil, where raw sugar is being offered at a small discount or at levels similar to New York futures. Thai sugar is also competing with sweetener from India and Pakistan.
The slow pace in the early Brazilian sugar crush blamed on wet weather and relatively weak prices could raise concerns about overall production over the next six months, said Luke Mathews, commodities strategist at Commonwealth Bank of Australia in Sydney. "That's a potentially supportive influence. The second supportive fact that we've seen in the sugar market has been the strong pace of Chinese imports over the past six to eight months or so." China imported 810,345 tonnes of sugar in January-April period, up 242.16 percent from a year ago.
Global sugar supply is expected to exceed demand by 3 million tonnes in the next crop year starting October, although the surplus will be less than half the 6.5 million estimated for the current 2011/12 season, according to the International Sugar Organisation.
In the coffee market, differentials for Vietnamese robusta beans could widen to $40 below London's July contract this week if farmers decide to sell more beans to take advantage of current high prices. But they could also be tempted to hold back on stocks and wait for more rallies in New York, a move which will cut the discounts. July robusta added $18 to end at $2,241 a tonne on Friday, having earlier touched $2,249, the highest for the second month since September 5, 2011. "Chart patterns for London coffee futures look bullish but I think coffee has risen too high too fast and might be due for a correction," said Lynette Tan, an analyst with Phillip Futures in Singapore.
"RSI is oversold at the 70 level. Fundamentally, there is a possibility Vietnam may hold on to stocks for a little more hoping to gain from more upside in prices." An RSI, or relative strength index, above 70 suggests that the market is an overbought territory, and may undergo a technical correction soon.
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