* Short covering in sugar runs out of steam
* Arabica stages small technical recovery
* Cocoa rises for fourth consecutive day
(Recasts, adds comment, updates prices, removes byline and
LONDON dateline)
By Josephine Mason
NEW YORK, June 7 (Reuters) – The sugar market closed lower
on Thursday after two days of gains as investors took profits
as deepening despair over a global surplus and weak demand
offset support from a possible rain-delayed harvest in Brazil.
Cocoa raced higher for a fourth day in a technical
correction after prices hit five-month lows late last week.
The short covering briefly propelled sugar higher on
Thursday for a third straight day, taking it further above 20
cents per lb to fresh two-week highs, before prices fell into
negative territory as concerns about a production surplus
returned.
“Near term, there is little to prevent global prices from
falling as low as 17 cents a lb before the end of the 2011/12
marketing year in September,” the bank’s analysts said.
“A weaker Brazilian real and weak ethanol prices have
lowered the Brazilian ethanol parity, encouraging sugar mills to
maximize sugar output.”
Some traders also locked in short-term profits on purchases
made when prices fell to August 2010 lows of 18.86 cents on
Monday.
The mood also turned sour in other commodities, including
energy and gold, after Federal Reserve Chairman Ben Bernanke’s
testimony offered little encouragement that there would be a
third round of bond buying to stimulate the world’s largest
economy.
Earlier in the day, markets had been buoyed by expectations
the first rate cut by China since the depths of the global
financial crisis would boost demand.
Raw sugar futures for July settled 0.7 percent
lower at 19.76 cents a lb on heavy volume after hitting a fresh
two-week high earlier in the day of 20.43 cents.
The moves were less dramatic than Wednesday’s more-than
5-percent spike, sugar’s biggest one-day gain since August last
year, as the scramble to buy waned.
Open interest in the July contract fell by 8 percent to
270,506 lots over the first three days of the week,
demonstrating the extent of the race to cover shorts, traders
said.
Traders are still focused on possible delays to the harvest
in Brazil due to unseasonably heavy rains. July prices moved to
a premium of 0.03 cent per lb over October for the first time in
more than a month, as producers sold forward and consumers
rushed for material for nearby delivery.
COFFEE, COCOA RISE
Technical buying pushed cocoa and coffee higher on Thursday,
helping to counteract waning demand and growing supplies.
The arabicas market staged a small recovery after hitting
fresh multi-year lows earlier in the day.
Arabica coffee futures for July rose 0.48 percent to
$1.5665 a lb bouncing back from an intraday low of $1.5425 -its
weakest level since June 2010.
“In both the arabica and the robusta markets, it’s very much
technical trade. In July arabicas there is strong support at
$1.53 per lb,” said CoffeeNetwork analyst Andrea Thompson.
Some traders see some support around $1.50, which is the
cost of production for roasters, although they warn that the
market is still vulnerable to pressure from expectations of a
big crop in top producer Brazil and to falling demand.
Cocoa futures rose a fourth consecutive day as a flurry of
short-covering continued after prices hit five-month lows late
last week.
ICE July cocoa futures settled 1.04 percent higher at
$2,226 a tonne in reasonable volume of 15,816 lots.
Renewed buying looked timed with a weak relative strength
index (RSI) on Friday when the 14-day RSI readings were at 33,
close to the 30 level that is considered a signal of oversold
conditions for traders using technical indicators.
But traders cautioned about the poor supply-demand
fundamentals, particularly in Europe, the world’s largest
consumer of chocolate.
“Europe’s a mess. I don’t see growth in demand in Europe,”
said Nick Gentile, chief of trading in commodity fund Atlantic
Capital Advisors in New Jersey.
(Editing by Jason Neely and Bob Burgdorfer)
