China Sugar Collapse Awakens Bulls as Thai Imports Quadruple

  • Thailand's white sugar exports to China quadrupled this year
  • Chinese sugar output set to fall to decade-low next season

A collapse in China’s sugar production is igniting business for Thai millers, drawing down stockpiles and setting the stage for a recovery in prices.

Dry weather and a decline in sugarcane planting means China will produce the least sweetener in a decade next season, according to researcher Green Pool Commodity Specialists. That’s a big opportunity for Thailand. The world’s second-largest exporter shipped four times as much white sugar to China this year through Aug. 21, from a year earlier, data from the Bangkok-based Office of the Cane and Sugar Board showed.

Trading houses and funds are reversing bearish bets on sugar as Thai refining reduces stockpiles of the sweetener, according to independent soft commodities trader Group Sopex. Global inventories that expanded during a five-year glut are expected to fall this year and the spread between U.S. futures contracts has tightened, a sign of restricted supply.

“The effective flow of Thai white sugar into China is what is changing the
market outlook,” said John Stansfield, a London-based analyst at Group Sopex, who has followed the market for more than 20 years. “It all boils down to a poor crop in China and the prospect of an even worse one to come."

Sugar Mills

Thai millers looking to supply China turned a record amount of raw sugar into the white variety this season through early August, commodities trader ED&F Man Holdings Ltd. estimated.

While raw sugar is near a seven-year low, Rabobank International forecasts prices will average 12 cents a pound in the first quarter, a 10 percent increase from now. The sweetener still fell 25 percent this year and is heading for a fifth annual loss following the global oversupply.

Near-term spreads are tightening, an indication that supply is restricted. Futures for October delivery in New York were 0.95 cents a pound cheaper than the March contract Thursday, compared with 1.59 cents on June 19. The discount reached 0.85 cents last week, the lowest since February.

Discount between futures contracts has narrowed
Discount between futures contracts has narrowed

There are other signs that investors are becoming more positive. In July, speculators were the most bullish on white sugar since at least 2011, data from ICE Futures Europe show. They are still bearish on raw sugar, according to the U.S. government.

Chinese Production

China’s sugar output will drop to 9.6 million metric tons in the year starting October, the lowest since the 2005-06 season, said Tom McNeill, director of Brisbane, Australia-based Green Pool. The world’s largest importer may face a shortfall of about 7 million tons, Stansfield said.

To plug the shortage, shipments from Thailand have more than quadrupled this year. Thai exports of white sugar to China totaled 339,821 tons from Jan. 1 to Aug. 21, according to the Office of the Cane and Sugar Board.

Thai millers have been incentivized to make more white sugar, a process known as re-melt, because its premium over raw futures has climbed more than 40 percent this year. They refined 2.3 million tons of raw sugar from the start of the season in October through early August, according to ED&F Man.

"Everyone now makes white sugar as it generates better income," Piromsak Sasunee, chief executive officer of Bangkok-based Thai Sugar Trading Corp., the nation’s largest exporter, said by phone on Aug. 24. "That attracts mills to remelt raw sugar to white as much as they can."

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