Sugar stockpiles released to stem price hikes

08:15, October 19, 2010      

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The Chinese government said on Monday it will release 210,000 tons of sugar from stockpiles to help ease surging prices.

It is China's seventh move this year to stabilize the sugar market as domestic prices surged more than 70 percent and reached a record high this month.

The Ministry of Commerce said in a statement on its website that all the sugar it releases will be auctioned in the market and it is willing to release more if necessary.

But the statement did not give the base and target price of the auction. The base price of the last auction on Sept 19 was 4,000 yuan.

Since December 2009, the government has auctioned a total of 1.71 million tons of sugar.

The auction quota set by the government at the beginning of the year was 2 million tons.

The price of sugar reached a record high of more than 6,000 yuan per ton this month, more than double the price in 2008.

A 10 percent output reduction triggered by drought earlier this year in the Guangxi Zhuang autonomous region, China's major sugar producing area, helped push up the prices, analysts said. The region accounts for 70 percent of China's sugar production.

As a result, sugar output dipped 6.7 percent in the last grinding season that ended in February, according to the China Sugar Association.

Domestic sugar demand has also been growing at an average annual rate of 6 percent.

Based on expected consumption of about 14 million tons last year, an additional 800,000 tons this year will be needed, analysts said.

In the first eight months, China imported 1 million tons of sugar, an 11.4 percent increase from the same period last year.

Hot money speculation fueled by the yuan's appreciation has also contributed to the price hike, analysts said.

The currency has risen by 2.6 percent against the US dollar since June, with further appreciation expected.

Sun Tong, an analyst with Bric Global Agricultural Consultants, an advisory firm annexed to the Chinese Academy of Agricultural Sciences, believes the price hike is temporary and will retreat as supply picks up.

"Generally speaking, the supply and demand now is turning to a pretty healthy condition, as supply is catching up with the government releasing stockpiles and Guangxi resuming production," Sun said.

"The main factor shoring up the price now is speculation, which will stop as supply grows further."

Sun said the government is likely to release stocks again by the end of the year to further stabilize the market, adding that prices will dip to about 5,000 yuan by the end of the year and remain so in the longer term.

Source: China Daily


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