20000206CSCE sugar surges to strong close on fund buying

NEW YORK: CSCE sugar futures rallied for the third consecutive session to end strongly on Friday due to speculative fund buying into stops, with key March poised to make a run to the psychologically vital 6.00-cent level.

"It's a game between the funds and the origins," Marius Sonnen, president of Sonnen and Co. Inc., said. "The funds are short. They have to get out of their contracts before it expires (on February 28)."

March sugar soared 0.18 to settle at 5.79 cents a lb, just a hair below the session peak of 5.80 cents. The intra-day low stood at 5.58 cents.

Over the last three sessions, benchmark sugar has risen 0.40 cent or by 7.42 percent of its value. March is now sitting just below the year high of 5.84 cents on Jan. 7. The last time it closed above 6.00 cents was on Nov. 18 at 6.04.

May jumped 0.17 to 5.92 cents and July gained 0.10 to 6.10 cents. The rest were 0.11 cent higher each, except for October 2001 which went out 0.09 firmer to 6.68 cents.

Sugar charged to higher ground in roughly two waves. The first bout of speculative buying allowed key March to fill the 40-day moving average around 5.72-5.74 cents before falling back due to heavy origin pricing, brokers said.

After easing to the mid-5.60 cents area, speculative funds sparked another surge which enabled March to barrel past the 50-day moving average at 5.77 cents.

"There was fund shortcovering across the board and the producers were selling into it every point on the way up," a physical broker with a trading house here said.

Dealers said it was difficult to say how much short positions the funds have covered in the market but that there was probably some more covering by the funds to do.

"I think we're headed to 6.00 (cents), but I know there's still a lot of origin selling near that level and I just don't know if we can sustain ourselves up there," one said.

Fundamentally, the picture remains grim. Supplies are abundant while offtake remains soft and demand from top importer Russia is said to be disappointing.

Said Sonnen: "The fundamentals remains a nightmare."

Technically, traders said they feel the next level of resistance in March sugar should be at the year's peak of 5.84 and in layers up to 6.00 cents.

Support was pegged at 5.65 cents, the level representing the top of a former chart gap which sugar took weeks to overcome.

Estimated volume traded in the CSCE sugar market reached 27,182 lots from the previous estimated total of 36,074 lots.

Call volume touched an estimated 6,042 lots while put volume reached around 1,949 lots. -Reuters