China Will Allow Further Gains in Sugar Prices

China, the world’s third-largest sugar producer, will allow domestic prices of the sweetener to gain further to boost incomes for farmers and the cane industry, the country’s biggest crusher said.

“The government wants reasonable incomes for farmers and crushers, so it won’t let prices fall,” said Jiao Nianmin, vice president of Nanhua Sugar Group Co., in an interview in Nanning today. “But it doesn’t want the gains to be too drastic.”

Sugar futures in China have gained 24 percent this year on expectations of reduced output and on increased government buying to ease a glut caused by slower sales. It is “unreasonable” for prices to fall below 3,500 yuan ($512) a metric ton, Vice Governor Yang Daoxi of Guangxi province said today.

“The government may allow prices to rise much more than that,” Jiao said, without saying what the upper limit might be.

White sugar for September delivery on the Zhengzhou Commodity Exchange fell 1.3 percent to 3,529 yuan a ton at 2:49 p.m. in Beijing. Cash prices in Guangxi are about 3,200 yuan to 3,300 yuan, the break-even point for the average crusher, Yang said.

Still, prices rising too fast, too soon may lead to excessive capacity expansion, which is unhealthy for the economy, Zhao Lihua, a director at National Development and Reform Commission, said today.

“The government will sell reserves if deemed necessary,” said Jiao, who is also vice chairman of the China Sugar Association. A rise to 4,000 yuan a ton may trigger a reserve sale, said Jocelyn Yang, analyst at Dahua Futures Co., in Nanning.

Sugar output in Guangxi province, China’s top producer of the sweetener, may fall 19 percent this year after freezing conditions and lower use of fertilizer cut yields, a regional industry official told the conference.

China meets the bulk of its needs domestically and imports around 400,000 tons of raw sugar every year from Cuba under a decades-old trade agreement.

source:bloomberg