After
an almost constantly growth of the sugar price in China since the beginning of
2016, the first month of 2017 has already shown a decline of the cane sugar
price in China, back to the level of November 2016. Market intelligence firm CCM has spoken with insiders of the industry to reveal the reasons behind the
price decline and predict the development of the sugar price in the near
future.
China’s
monthly market price of cane sugar, Jan. 2015-Jan. 2017
Source:
CCM
In
the year 2016, China’s sugar market experienced a rebound from the sluggish
trend in 2015, with almost seamless growth till December. During the last year,
the planting area of sugarcane did decrease. This causes a higher purchase cost
for the sugar producers, due to shorter supply. Additionally, some heavy rain
during that time also reduced the quality of sugarcane, increasing the cost of
sugar manufacturing ones more. This led to rising sugar prices throughout the
year.
However,
In the first month of 2017, China’s sugar market already faced a decline in
price. According to the industry expert, the reason can be found in the
weakened impact by financial features and a changing supply-demand relation.
The macroeconomic conditions, which back this statement up, can be summed up in
three main factors for China and some developments in the USA.
Macroeconomic
conditions
China’s
government is following a more neutral monetary policy in the year 2017. That
concludes the monetary policy will rather turn to be normal instead of being
loose. In addition, there are no critical comments about a rational economic
operation, which shows a more tolerate attitude towards slower economic growth.
Finally, a prevention and control policy of financial risks is in the slow
transformation to a prevention only of financial risks.
Looking
at the USA, the Federal Reserve System is going to increase the USD interest
for about 3-4 times in the year 2017. This leads to the increase of the US
Dollar Index, which is very likely to even reach the historic high 121.02,
which the last time was reached in 2001. This development then will restrain
certain speculations of a bulk commodity.
The
development of the US Dollar Index is furthermore also affecting the Brazilian
currency, which continues to depreciated. The overall effect is reduced costs
for sugar exports from this important manufacturing country, with the outcome
of a likely shrinking sugar price at the global market.
Supply
of sugar
For
analysing the supply of sugar, it is useful to look at the largest markets for
sugar, namely China, India, and Brazil.
According
to the industry expert, the sugar output in China will continue to increase in
the season 2016/17, due to an enlarging planting area for sugar production in
China’s most important province and an increased output of sugar beet in the
critical provinces. The climate condition for sugar production also shows a
beneficial development for this extracting season.
In
numbers, the nationwide sugar output in China is expected to rise about 800,000
tonnes. With an outlook of the further increase of sugar yields, the increasing
output will without any doubt put a growing pressure on a price rise in China.
India
used to be a big sugar importer, due to the growing demand in this country. In
the extracting season of 2016/17 however, India shows its sugar output
surpassing its demand by 5.60 million tonnes. Hence, India does not depend on
sugar imports in the short run, which is dramatically changing the global
supply and demand situation of sugar.
For
Brazil, the output of sugar is expected to fall but still remain on a high
level. The total output for 2016/17 is expected to reach almost 40 million
tonnes, which is less than it has been forecasted in August 2016.
Factors
supporting price rise
A
lasting sugar price fall, however, is not very likely, looking at the
conditions in China, which support a price rise in general, even it is slight.
According
to CCM’s research, the Ministry of Commerce of the People’s Republic of China
is discussing a tariff increase of imported sugar, which is very likely to be
implemented. This will generate greater pressure on exporters to China and is
beneficial for a domestic price rose in China.
Also,
China’s government is successful fighting against the sugar smuggling in the
country, with a decreasing amount of sugar smuggled at a result, which supports
Chinese manufacturers to keep their prices high.
About
CCM:
CCM is the leading market intelligence provider for China’s agriculture, chemicals,
food & ingredients and life science markets.
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