Insight Focus
China could buy more raw sugar near 18c/lb. Tight sugar stocks and higher costs, coupled with slower imports, have made Chinese sugar prices more resilient and thus improved import margins.
China relies on more than 5 million tonnes of sugar imports a year. This is around a third of its annual supply, with domestic sugar accounting for the rest. Therefore, domestic prices usually align with world market sugar prices.
Import margins therefore vary through the year, affecting the rhythm of China’s raw sugar demand. The recent strength of domestic sugar prices amid No.11 raw sugar price weakness has improved import margins.
The Costs of Domestic Sugar Supported Market
This year, domestic sugar supply is quite tight. The cost to make this sugar is also high.
The sugar production in Guangxi accounts for about 60% of the country’s total output, so its cost is often used as an important reference for market transactions. And the most critical cost factor may be the price of sugarcane, which usually accounts for 70% to 80% of the total cost. It has seen a 6% increase in the 2023/24 season.
In addition, the sucrose content in the 23/24 season fell significantly which increased the cost of sugar production. With low sucrose yields, it takes 8.2 tonnes of cane to produce a tonne of sugar; this was 7.6 tonnes back in 2019/20 season. This translates to around an extra cost of USD 50/tonne of sugar.
For the 2024/25 season, we expect the average price of sugarcane to be in line with 2023/24 season, whilst sucrose content is expected to return to normal levels. These factors suggest that the average sugar cost could be slightly lower to around USD 750/tonne.
High Costs of Imported Sugar
The higher local sugar production costs often give imported sugar a competitive margin. However, since 2023, due to the rise in world sugar prices and the weakening of the RMB exchange rate, the AIL import cost of raw sugar has risen significantly, and the import margin went negative. As a result, only a measly 41,000 tonnes of raw sugar were imported between March and June 2024.
In 2024, the landed cost of the 1.17 million tonnes of imported raw sugar is USD 602/tonne, 5% higher than that of 2023. However, most of this sugar is imported under quotas, and the cost is estimated at RMB 6,000/tonne.
We expect significant volumes of AIL raw sugar to arrive in the third quarter, with CIF prices to fall to the USD 400 to USD 500 range. Still, the overall cost is not cheap, expected to be between RMB 6,000 and RMB 6,500.
Today, the AIL import cost has dropped to RMB 6,000/tonne, and the import parity close to breakeven. This could incentivize some AIL buying for this year’s demand at around 18c/lb.
