China May Buy More Sugar as Production Drops For a Third Year.

China, the world's biggest sugar consumer after India, may seek additional imports after buying a "substantial" quantity to cool local prices as output drops for a third year, a government official said.

While the country has sufficient stockpiles after recent imports, it will be "happy" to see more purchases because imported sugar costs less than domestic supplies, Liu Xiaonan, deputy head of the economy and trade division under the National Development and Reform Commission, said at a conference in Kunming yesterday.

Increased Chinese imports may help cool inflation that surged to the fastest pace since 2008 last month, and buoy raw sugar prices that have slid 27 percent this year. Output may drop to 10.5 million metric tons this year from 10.74 million tons a year earlier on frost, drought and labor shortages, according to the China Sugar Association.

"All eyes are on the policy front, given that the production shortfall now becomes clear," said Axl Wang, Beijing research manager at Wanda Futures Co.

China may buy as much as 1.8 million tons from overseas over the next four months, Australia and New Zealand Banking Group Ltd. said on April 18. Prices in some provinces of China are now more than 50 cents per pound, it said.

White-sugar futures on China's Zhengzhou Commodity Exchange have advanced 37 percent in the past year to 6,896 yuan ($1,054) a ton. In London, refined-sugar futures for August delivery closed little changed at $639.10 a ton on NYSE Liffe on April 21.

'Top Priority'

"The government has made it a top priority this year to ensure supply and maintain price stability," Liu said. "We have taken the opportunity to import a substantial amount of sugar and now have enough stockpiles to plug the production shortfall."

The government can "easily ensure 1.2 million tons of sugar supply" from stockpiles between now and the time when the new crop becomes available next season, Ding Shuwang, deputy head of the market control division under the Ministry of Commerce, said in Kunming, citing China's increasing capacity to process raw-sugar imports into refined sweetener. The government sold 760,000 tons from its reserves since the year that began on Nov. 1, NDRC's Liu said.

Sugar demand in China may reach more than 13.5 million tons this year, down from an estimated 13.78 million tons a year ago, as record prices encourage the usage of cheaper substitutes such as corn syrup and eroded affordability for low-income consumers, said Liu Hande, head of Guangdong Sugar Association.

China announced a 1.94 million-ton sugar import quota at the beginning of this year and has yet to give the bulk of the quota to qualified companies, Wanda's Wang said.

"We will have to see when that quota will be distributed, and commercial imports aren't possible until someone has the quota," he said.

Source : sfgate.com