Insight Focus
The Ministry of Commerce has just released new AIL raw sugar import data. After purchases during the lows and wash-out during rebounds of raw sugar prices, how much of China’s AIL demand will be achieved in 2024?
China’s Ministry of Commerce has released out-of-quota (AIL) raw sugar import data as of August 15. From January to September 2024, the import volume of AIL raw sugar (including forecast) has reached 580,000 tonnes, exceeding the 420,000 tonnes for the whole of last year.
Combined with the estimated arrivals in Q4’24, we think usage of AILs should exceed 1 million tonnes this year, although this is still a long way from the 2.51 million tonnes in 2021. Compared to over 3 million tonnes of AIL allocations, the fill rate is about one-third.
Seasonality of AIL Imports
AIL imports are mostly achieved in the second half of the year, to make room for the sugarcane crushing peak seasons. We notice that AIL allocations in recent years have typically been made in April or May, when the sugarcane crushing is nearing its end.
The most important determinant of AIL imports remains import parity. In 2024, the AIL demand rose as import margins improve from deep losses in 2023 to near breakeven.
However, some of the raw sugar demand locked in at 18c/lb and below may be washed out in the recent rally in raw sugar prices for profit taking, like the previous rally in June.
This is because even at 18c/lb for raw sugar, the cost of AIL import is about CNY 6,200/tonne, while the domestic spot price of white sugar has fallen to a similar level. If domestic prices fall further, it could eat into their already thin margins.
Outlook for 2025
As the 2024/25 season approaches, domestic sugar production is expected to increase by up to 1 million tonnes, despite the recent typhoons that have taken a toll on sugarcane growth. Against this backdrop, we believe the pace of AIL allocations next year is likely to remain similar to this year’s.
The volume should remain around 3.3 million tonnes. As raws supply in the world market could be tight in the first half of next year with recent concerns surrounding Brazil’s production, AIL import parity is likely to be a more critical factor than allocated volumes.
Besides, allocations of quotas are usually stable. We expect it to be 1.945 million tonnes in 2025, as well as an additional 85,000 tonnes under the special government-to- government agreement, which would normally be fully met, with a low tariff of 15%.
Note: 2024 imports are updated until end of July
