China’s sugar futures fell after the government announced a purchase program that investors said would be too small to absorb oversupply in the global market.
Refined sugar for September delivery, the most-actively traded contract in Zhengzhou Commodity Exchange, fell 0.7 percent to close at 5,162 yuan ($841) a metric ton after the government said it would buy 300,000 tons of local white sugar at a maximum 6,100 yuan a ton for stockpiles.
China became the largest sugar importer last year with 4.19 million tons as the government stockpiled the sweetener to support farmers’ incomes, which boosted local prices to levels above the prevailing world prices. Global raw sugar prices have dropped 17 percent in the past 12 months amid oversupply.
“The government’s purchase of local sugar was well anticipated and the 300,000 tons seemed a drop in the bucket for a global market where the surplus is projected at more than 8 million tons,” said Zhan Xiao, analyst at Xinhu Futures Co. “The decline in the futures shows investors are expecting imports to jump, eventually bringing down local sugar prices.”
Sugar imports by China were 1.26 million tons in the first six months of the season through March, customs data showed. Imports will jump to 1.5 million tons in the April-September period as traders bring in shipments because domestic prices are high, Zhan said.
China controls its sugar imports through quotas agreed under the World Trade Organization, permitting about 1.9 million tons a year at a 5 percent duty. Inbound shipments outside the quota are levied a 50 percent duty.
Officials from government ministries and agencies expressed concerns at a conference in Kunming last month that state stockpiling of local sugar is indirectly encouraging imports.
“We figured the current stockpiling program can only be a temporary solution and we might want to use other policies to ensure local production and protect farmer interests,” said Xu Xue, an official at the Ministry of Agriculture on April 22 in Kunming.
To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at firstname.lastname@example.org