April 17 - Total Chinese centrifugal sugar output is forecast to increase nine percent to 14.5 MMT (raw value) in marketing year (MY) 2009/10. Due to the industry practice of maintaining a preset purchase price for sugar cane and beets each year, the market returns for these two crops have been relatively consistent compared with other competing crops.
In MY 09/10, acreage for sugar cane is forecast to remain unchanged from the previous year and sugar beet acreage is forecast to fall slightly. MY 08/09 production is estimated at 13.5 MMT (raw value), down 15 percent from the previous year due to a substantial drop in yield caused by unusually low winter temperatures and excessive rainfall in summer. The consumption of natural sugar in MY 2009/10 is forecast to rise five percent, driven by growth in the beverage and food processing sectors. To boost sugar consumption, the government will continue to control production of artificial sugar and limit its sale on the domestic market.
Sugar Production
Assuming an average yield for both cane and beets, overall sugar output for MY 09/10 is forecast to reach 14.5 MMT (raw value), nine percent higher than MY 08/09. Cane sugar output for MY 09/10 is forecast at 13.4 MMT, seven percent higher than MY 08/09. Beet sugar output is forecast at 1.1 MMT in MY08/09, 10 percent higher than MY 08/09. The top five producing provinces are: Guangxi, Yunnan, Guangdong, Hainan and Xinjiang. Their output is estimated to account for 95 percent of national total sugar output in MY 08/09. MY 08/09 production is estimated at 13.5 MMT (raw value), 15 percent lower than the previous year due to a drop in both cane yield and sugar content level. According to industry contacts, most of the mills will finish crushing by the end of April 2009 due to a smaller crop, while in the previous years the crushing season extended until mid-May.
The average production cost for sugar in Guangxi was estimated at $478/ton (RMB3,250/ton) in MY 08/09, while it was $471/ton (RMB3,200/ton) in MY 07/08. Fuel and labor price rises are the major factors that boosted the production cost.
In MY08/09, at the beginning of the crushing season, the sugar price fell below the production cost due to a high stock level and sluggish demand. As a result, the industry lobbied the central government to purchase sugar to hold as state reserves during the processing season. In December 2008, the National Development & Reform Commission and People’s Bank of China jointly announced the plan to extend loans for the industry to purchase 2.8 MMT of refined sugar from the market to store as a temporary industrial reserve. The loan lasted six months and helped alleviate the sector’s need to pay cane farmers and maintain smooth production operations.
In addition to the industrial reserve program, the Ministries of Commerce and Finance and the National Development & Reform Commission jointly published a plan in January 2009 to purchase 800,000 tons of white sugar for the national sugar reserve. The purchase price is fixed at $485/ton (RMB 3,300/ton), in reference to wholesale sugar price in Guangxi, and there is no closing date for the purchase program. This price is $29.40/ton (RMB 200/ton) lower than the previous year.
The government designated about 20 sugar reserve warehouses in consuming regions to store the sugar. The final settlement prices at different warehouses vary in accordance with their transportation cost from Guangxi province. Industry sources estimate that the actual amount purchased is less than 800,000 tons because the announcement of the program substantially has boosted the market price since January and the current market price is higher than the government purchase price. Post believes that the final purchased volume will not reach the maximum purchase amount.
