Sugar stockpiles unlikely to cover shortage

Updated: 2011-08-19 10:52

By Feiwen Rong (China Daily)

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BEIJING - Sugar sales from government stockpiles in China, the world's second-biggest consumer, won't make up for a domestic shortage, experts say, increasing the possibility of more imports and higher prices as the country struggles to contain inflation at the fastest pace in three years.

"We are in peak consumption season now and demand is robust from food and beverage and candy makers," said Liu Qingli, an analyst at GF Futures Co. "We are in an odd situation that the more the government sells, the further sugar prices seem to climb." Liu was ranked as the third-best sugar analyst in China this year by Securities Times and Futures Daily.

Raw sugar in New York has climbed 45 percent from this year's low in May on concern that production in Brazil, which represents about half of global exports, will decline more than forecast and on tightening supply in China. The government has sold sugar and corn this year in an effort to curb inflation, which gained in July at the fastest pace since 2008.

"Local demand is expected to outstrip supply by more than 2 million tons as production is projected to decline for the third year," Liu said. Crushing of new-crop cane may be delayed this year as cane in Guangxi Zhuang autonomous region appeared to be growing at a slower pace because of drought and low temperatures, Liu said. A delayed crushing season may further exacerbate the tight supply, he said.

Sugar production will fall to 10.45 million tons in the current crop year from 10.73 million tons a year earlier, according to the China Sugar Association.

China has struggled to increase cane acreage due to limited land and increasingly expensive labor, said Gao Wang, an analyst at Beijing Orient Agribusiness Consultant Co. A total of 13 provinces raised minimum wages in the first quarter of the year by an average 21 percent, data from the Human Resources and Social Security Ministry show. Average deliverable stockpiles of refined sugar at warehouses of the Zhengzhou Commodity Exchange have fallen to about one-tenth of the average level a year ago, another indication of tight supply and low inventory, said Song Lu, an analyst at Dongwu Futures Co.

The government has already sold about 1.48 million tons in the previous seven auctions, according to Bloomberg calculations. Another 200,000 tons is slated to be auctioned on Aug 22, the second this month and the eighth so far in the 2010 to 2011 season.

Still, average prices of the sweetener exceeded 7,700 yuan ($1,205) a ton for the first time ever during the last auction concluded on Aug 5, according to the industry website gsmn.com.cn. "If the cane-crushing season is delayed to late November, China will have to rely on inventory and only limited new beet sugar supply in October and November," said Beijing Orient's Gao.

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