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
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.
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.
CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets.
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