China Sugar Imports To Fall; Govt Reserve Sale Likely

Chinese sugar imports will likely tumble in the coming months on high global prices and the release of some state reserves in the second half of this year, analysts said Tuesday.

A decline in buying by the world's second largest consumer and third-largest producer will likely reduce pressure on the global physical market, already tight due to a worldwide production deficit, but may not dent high prices, thanks to fund interest.

Chinese sugar imports in the January-May period rose 66% on year to 639,459 metric tons, the General Administration of Customs said Monday. Of this, 252,025 tons, or 39%, were Cuban imports, which rose by 41% on year.

The jump in imports seems like an indication of strong Chinese demand, given the 17% fall in domestic production in the 2008-09 crop year that began Oct. 1, but analysts said it was merely a combined effect of the Chinese government's annual commitment to Cuban sugar and the arbitrage window which appeared earlier this year but has already been closed.

"The imports in coming months will fall significantly from what we have seen in the first five months," said an analyst in Beijing.

Total imports in the June-September period are estimated at 100,000-200,000 tons, according to the analyst at a major agricultural commodities trading house.

China imported 698,832 tons of sugar in the January-September 2008 period.

Domestic consumption isn't very good now, as can be expected in an economic slowdown, and it's unreasonable to expect a significant increase in the coming months, said Zhang Fangfang, an analyst at Shanghai Jiuheng Futures.

"So, commercial imports will be difficult to sustain at a high level in the second half of this year, especially given the high (global) prices now," she added.

The ICE July 2009 contract closed higher at 15.08 cents a pound Monday, or around 30% higher than the benchmark at the beginning of the year.



Release of State Reserves Expected



Meanwhile, many analysts in China expect the government to sell, some time during the second half, some of the state reserves stockpiled since January 2008.

The government may choose to do so either during the summer, if seasonal consumption spikes, leading to a price rally, or before the start of the next crushing season when stocks might have been exhausted, said industry participants.

This will alleviate any temporary domestic tightness that might occur in these two critical periods, they added.

China bought 1.1 million tons of white sugar for reserves in 2008, hoping to shore up low prices then and protect farmers' income and growing interest.

"Because it's white sugar, the government has to release the earliest batch some time before the end of this year, as it can't be stored for a long time," said Chai Ning, an analyst at COFCO Futures in Beijing.

"Most industry participants believe it's just a matter of time," she added.

source: online.wsj