- China’s raw sugar import margin is the poorest it’s been since December 2019.
- High raws prices and costly freight have weakened refiner returns.
- China could therefore import 1.5m tonnes less sugar than it did in 2020.
China’s Raw Sugar Import Margin Hits 20-Month Low
- It’s unprofitable for Chinese buyers to import raw sugar at today’s prices.
- The climbing No.11 and expensive freight have weakened returns.
- We therefore think China will import just 4m tonnes of raw sugar in 2021, down 1.5m tonnes year-on-year.
- This drop is largely fueled by the poor margins on offer, but also comes as the Ministry of Commerce refused to issue out-of-quota import licenses until May.
- It was worried cheap imports during the crush (December to May) would weaken the mills’ sales; China’s mills produce low-quality whites from domestic cane and beet, whilst the refineries import and refine raw sugar.
- By the end of July, the refineries had imported just 760k tonnes of out-of-quota sugar, down 240k tonnes year-on-year.
Could China’s Demand Improve?
- If the No.11 drops below 18c/lb and the import margin re-enters positive territory, China could import up to 500k tonnes of raws.
- This is because the refineries will want to fully utilise their out-of-quota import licenses.
- Having said that, the 2.2m tonnes of raws they bought between January and July was purchased when prices sat below 14c/lb (vs. 19.58c/lb today), so it’ll still be expensive.
Where Will the Sugar Come From?
- 87% of China’s raw sugar has come from Brazil this year, even though freight costs for that route surged from 30 USD/mt in January to 69 USD/mt in July.
- We think Brazil will remain a key supplier as it is still a cheaper option than Thailand.
- Thai freight rates have more than doubled since Jan’20 (now at 25 USD/mt), and the physical values for Thai raws are also 200 points over the No.11, whilst Brazil’s are 30 points under.
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