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China Sugar-Reserve sales to meet crop shortfall

SHANGHAI: China is likely to sell sugar from its huge reserves to meet a production shortfall following a devastating early winter frost in the sugar producing area, industry sources said on Monday.

So far, there were no signs that the government would raise import quotas to buy more foreign sugar, they said.

"The government would draw down from the reserves before increasing imports," a trader in Beijing said.

It sugar stockpiles are estimated at between one to two million tonnes.

Last year China issued import licences for about 300,000 tonnes of sugar. But total imports, including government-to-government deals were 420,000 tonnes, down 13.5 percent from 1998, according to customs data.

Foreign traders have forecast China's imports could climb to 500,000 tonnes this year. But industry sources said that despite temptingly low prices on world markets, quota restrictions and a crackdown on smuggling would continue to keep foreign sugar out.

"China will limit sugar imports as long as it can," the trader said.

SHORTFALL RINGS NO ALARM

A worst frost since 1975 hit China's sugar producing region of Guangxi, Yunnan and Guangdong and could have affected a quarter of China's sugar cane crop.

Guangxi provincial authorities estimate sugarcane production could fall by 2 million tonnes, cutting sugar production by 800,000 tonnes.

But China's total sugar output was still expected to reach 8.5 million tonnes, down from last year's 8.8 million tonnes, according to a Chinese official quoted in a US Agricultural Department attache report.

Industry sources said the output deficit from the southwestern provinces would be offset partially by rising production on the southern island of Hainan.

An official from the state China Sugar and Spirit Group Corp said it was difficult to give estimates of the sugar shortfall when crushing was still going on.

RELIEF FOR FARMERS, REFINERIES

China's sugar cane farmers and refineries have been struggling over the past few years since sugar production moved into surplus in 1994.

A key factor was the soaring production of artificial sweeteners, which has now reached 28,000 tonnes. Of that, 13,000 equivalent to 4.5 million tonnes of sugar is consumed domestically.

Since the frost, domestic sugar prices have risen to as high as 3,600 yuan ($435) to 3,700 yuan a tonne, up from the official purchase price of 3,100 yuan per tonne.

Industry sources said the government appeared content to see sugar prices rising.

"It gives the domestic sugar industry a chance to cut losses before China joins the World Trade Organisation," the Beijing trader said.

China pledges to phase out sugar import quotas in five years after becoming a member of the trade group, which it expects to happen this year.

Some foreign traders say they expect China's sugar imports under WTO could rise to 1.6 million tonnes a year. -Reuters