China May Phase Out Sugar Stockpiling Program, NDRC Says

(Businessweek) – China, the second-biggest sugar consumer, may phase out a stockpiling program that boosted inventories to a record while failing to lift domestic prices, according to an official at the country’s top planning agency.

The effort cost the government almost $3 billion in the past two years, according to an estimate by Xinhu Futures Co. It may be partially replaced by direct subsidies to cane and beet farmers as early as the crop year beginning October 2014, said Zhao Lihua, a director at the economy and trade division of the National Development and Reform Commission.

While China has been buying the sweetener for the past decade to boost incomes of 40 million sugar farmers, local prices have slumped 9.1 percent since reaching a five-month high on Jan. 8. Imports climbed to a record 4.5 million metric tons in 2011-12.

“We have this dilemma,” said Zhao at a conference in Kunming in the country’s southwest on Nov. 1. “The more the government stockpiles when local supply exceeds demand, the worse the oversupply becomes because we end up importing more.”

Refined sugar for May delivery on the Zhengzhou Commodity Exchange climbed 0.7 percent to close at 5,195 yuan a ton (38.64 cents a pound), while raw sugar in New York was at 18.32 cents a pound on Nov. 4. Prices in New York will average 17.25 cents a pound in the second quarter of next year, Deutsche Bank AG says.

Stockpiles swelled to 6 million tons at the end of September, equivalent to nearly half of the country’s output last year, according to Wanda Futures Co. China doesn’t publish stockpile data.

Global Surplus

Global demand will rise 2.3 percent to a record 167.3 million tons in 2013-14, as production expands 0.2 percent to 174.9 million tons, the U.S. Department of Agriculture estimates. China will have reserves of 5.48 million tons by September, according to the USDA.

China will import 2.5 million tons in 2013-14, 43 percent less than a year earlier, said Jonathan Kingsman, founder of Kingsman, a unit of McGraw Hill Financial Inc.’s Platts. The nation may buy as little as 1.4 million tons, Robin Shaw, an analyst at Marex Spectron Group in London, said in October.

China controls its imports through quotas agreed under the World Trade Organization, permitting about 1.9 million tons a year at a 15 percent duty. Inbound shipments outside the limit are levied a 50 percent duty.

‘Excessive Imports’

“Excessive imports have caused a glut in the local market and hurt the local industry,” said Bu Zhengfa, head of China National Light Industry Council, in Kunming on Nov. 1. “China’s sugar-crushing industry suffered sector-wide losses last year for the first time in more than 10 years.”

Imports will fall to 1.5 million-2 million tons in 2013-14 as the cost of sugar imports outside of the alloted quota will rise above 5,500 yuan a ton, said Jia Zhiren, head of the China Sugar Association, in Kunming on Nov. 2.

The government bought up a net 2.64 million tons of local sugar in the two years that ended September at above-market rates to mop up a domestic surplus, said Yongan Futures Co.