CHINA: Import taxes on sugar seen potentially damaging to market
Published: 05/19/2017, 2:59:44 PM
China looks set to raise taxes on imported sugar on Monday, a move that would further batter a commodity that is already one of the worst performers of 2017, according to Dow Jones.
Last September, Beijing announced it was investigating a sharp increase of foreign-produced sugar in the country after sugar millers complained that cheap imports were being dumped into China, undercutting their business.
Prices topped out on Sept. 29, putting 2016's gains at nearly 60%. But they fell 15% in the fourth quarter as Brazil forecast another robust crop and they have shed a further 18% so far in 2017 to hit their lowest levels in a year.
Higher sugar-import taxes would likely further curb shipments to China, the world's largest recipient of the sweetener, and boost international supplies at a time of record production.
"China is around 10% of global [sugar] trade, so what they decide to do will have an impact on prices," said Tobin Gorey, director of agri-strategy at Commonwealth Bank of Australia.
The country's imports of dried distillers grains -- a byproduct of corn ethanol production used as animal feed --halved in 2016 as China looked into whether the feed was being dumped and then slapped new tariffs on the product. The fall in demand helped push prices down 18% for all of last year.
China already levies a 50% tax on all but the first 1.95 million tons of sugar legally arriving into the country; official imports for the year through Sept. 30 are seen reaching 3.5 million tons. Chinese prices are more than double those on the global market because consumption is nearly twice what is produced domestically, so it has remained economical to buy offshore and sell in China.
Zhang Xiangjun, an analyst at Founder CIFCO Futures in China, said there are some worries that the import tax could rise as much as 45% to 95%.
"The question is going to be how much is the Chinese government willing to put up with sugar-price rises" and their impact on food inflation, Gorey said
China's announcement in September that it was investigating sugar imports came barely a week after the U.S. challenged it at the World Trade Organization over its support program in 2015 for wheat, rice and corn growers.
Aurelia Britsch, commodities chief at BMI Research, said that if an increase is proposed for sugar, Brazil would likely fight the move at the WTO.
Growing Chinese demand for foreign sugar, which primarily comes from Brazil, the world's biggest sugar producer, has become a key factor driving global prices the past few years.
In the year through Sept. 30, the annual growing cycle for sugar in China, prices surged 67% as illegal imports from Myanmar helped tighten global supplies. The government has been cracking down on such shipments, helping push down sugar imports to China in recent months.
Government selling from its own reserves has also pushed down domestic prices and crimped the attractiveness of sending imports there.
Combined, official and illegal sugar imports rose an estimated 60% in the three years through Sept. 30, according to the U.S. Department of Agriculture, as Beijing removed a price floor that caused farmers to move into more-profitable crops -- reducing domestic output of sugar.
Meanwhile, producing it in China remains expensive and margins are low as fields tend to be planted by hand, meaning labour costs are higher as such work in much of the rest of the world is mechanized.