Breaking News

Tweet TWEET

China’s Plan to Cut Sugar Imports Backfires as Shipments Advance

China’s plan to cut sugar imports by stockpiling the sweetener is backfiring as traders are importing even more because government purchases from local producers are helping keep domestic prices high.

Sugar imports into China were 1.26 million metric tons in the first six months of the season through March, customs data showed. That’s more than the 1 million tons the U.S. Department of Agriculture’s Foreign Agricultural Service estimated the nation would bring in for the whole season. Chinese sugar futures were 5,132 yuan ($831) a ton today. That’s 66 percent more than the futures traded on NYSE Liffe in London.

“The government’s stockpiling program is indirectly encouraging more imports,” Toby Cohen, a director at London- based sugar merchant Czarnikow Group Ltd., said in a telephone interview April 23. “This time last year we thought Chinese imports in 2013 would be about 1.5 million tons. Now it looks as if imports could be about a million tons higher.”

China’s State Council agreed to buy 300,000 tons of local sugar for stockpiles to ensure farmer interests and stabilize production, reducing the need for imports, Jia Zhiren, head of the China Sugar Association, said on April 21. The nation had already bought 1.5 million tons for inventories this year.

Brazil, the world’s largest sugar producer, shipped 945,615 tons of sugar to China from October to March, according to data from SA Commodities and Unimar Agenciamentos Maritimos Ltd. That’s more than double the 469,900 tons shipped in the same period in 2011-12, when China was the world’s biggest importer of the raw sweetener. In the first six months of 2010-11, cargoes from Brazil to the Asian nation totaled 97,000 tons, the data showed.

China Imports

Imports into China are rising even if the sugar isn’t needed for consumption, Paris-based trader Sucres et Denrees SA, which ships more than 8 million tons of sweetener a year, said in a quarterly report on April 3. The nation will bring in 2.72 million tons this year, Brisbane, Australia-based researcher Green Pool Commodity Specialists Pty. estimates.

Global raw sugar exports were a record 7.2 million tons in the first three months this year, up 20 percent from the previous peak in 2010, Peter de Klerk, a London-based Czarnikow analyst, said on April 12. Global sugar consumption will be 174.1 million tons in 2012-13, up 1.8 million tons from a November forecast, Czarnikow said in a report last month, adding that consumption is “higher than the market is estimating.”

“Physical demand has been supporting price,” Czarnikow’s Cohen said. “Trade in the first quarter hit a new record.”

Production Forecast

China is likely to continue importing sugar in the second quarter as production there will be smaller than initially thought, according to Green Pool. Output will be 13 million tons in 2012-13, down from a forecast of 13.7 million tons before the season started, said Tom McNeill, a director at the company. Chinese production will be less than forecast as drought and low temperatures in the southwest reduce the sugar content in the cane, according to the China Sugar Association.

Global sugar supplies will be 8.5 million tons higher than demand in 2012-13, a third year of surpluses, according to the International Sugar Organization. The London-based group had previously expected excess supplies of 6.2 million tons, it said on Feb. 21. Raw sugar futures traded on ICE Futures U.S. in New York fell 11 percent this year after slipping 16 percent in 2012 and 27 percent a year earlier. A third year of declines would mean the longest price slump since 1992.

“We still have a sizable surplus this year and there is no way China alone will fix it, but the imports have boosted demand and that was somewhat unexpected,” Green Pool’s McNeill said. “China is one of the few bright spots in the market.”

To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.