Sugar price shall fluctuate at a high level in the near future.
The first auction of the national sugar reserve was concluded on December 10th, all the listed 207,445.69 tons of sugar were transacted. The starting price was 4000 yuan/ton, the highest transaction price was 5130 yuan/ton for the company warehouse of Hebei Province, and the lowest was 4760 yuan/ton for Niekou Warehouse, Hubei Province. After this, sugar price stopped rising temporarily.
The 2nd auction of the national sugar reserve was concluded on December 21st, and the total transaction volume recorded 288,200 tons. The highest transaction price was 4860 yuan/ton for the direct warehouse in Qingdao, Shandong, and the lowest was 4490 yuan/ton for Niekou Warehouse, Hubei, whereas the average was 4672.23 yuan/ton.
The transaction price of the 2nd auction was around 250 yuan/ton lower than the first one, but both the futures price and spot price have been keeping at high levels.
From the perspective of crushing, cane crushing in the South has been progressing quickly, both the sugar content in canes and yield are higher than in last year, and the national sugar production is likely to be the same as in last year or with a minor growth, we keep our previous forecast on sugar production. Sugar supply during this campaign should be: 12.50 million tons of production + 400,000 tons surplus from the last campaign + 500,000 tons from the national reserve + 600,000 tons import = 14 million tons. In terms of demand, owing to the high sugar price, some sugar application shall be replaced by starch sugar or other sweeteners, meanwhile, sugar users dare not to keep a large stock due to the high price level, hence the social sugar stock shall decline, and the gross sugar consumption shall keep around 13.50 million tons; therefore the supply shall be able to meet the demand. In the near future, there is release of the national sugar reserve, and cane plants in the South are kicking off of crushing, so sugar supply shall climb, and it is unlikely to see a continual substantial price hike. If the price keeps on moving up, the Government would release more national reserve, hence it is unlikely to see a sharp price hike unless there is a significant reduction of sugar output, whereas this depends on the weather conditions in the future.
