• China’s sugar mills have struggled to make sales this season.
• They had 653k tonnes of white sugar in stock at the end of June.
• With this, China’s stocks were at their second highest level since 2013/14.

Second Highest White Sugar Stocks On Record

• China’s white sugar stocks are the largest they’ve been since 2013/14, when it produced a record amount of sugar (13.3mmt).

• The mills have struggled to make sales this season, with many consumers buying directly from the refineries, due to the increased freight costs from Guangxi.

• The Ministry of Commerce (MOC) delayed the issuance of import quotas/licenses to refineries until late April, in hope that the mills could shift their sugar.
• The majority of the refineries only use imported raws to produce refined sugar, whilst the mills use cane or beet to produce white sugar; the two are in competition with one another.
• The delay was supposed to protect domestic sugar industry by ensuring the mills were the main supplier before they started crushing in June.
• This wasn’t the case, though, as the mills were unwilling to make discounted sales.
• They’ve sold around 6.7m tonnes of sugar to date, down 402k tonnes year-on-year.

What Does This Mean for China?

• High stocks meant physical premiums fell from 429 RMB/mt to 0 in the first three months of 2020/21.

• They also suppressed ZCE white sugar futures, which in turn weakened the raw sugar import margin.
• With this, the refineries won’t likely import raw sugar until import margins are in positive territory.

• They currently have less than 1m tonnes of demand left to cover (out of their yearly 4.5mmt demand).
• We still think they’ll try to fully utilise their Automatic Import Licenses this year, but if imports remain unviable, they could hold off until the last minute.
• If the No.11 moves towards the bottom of the range (16-17c), China should still import 4.5m tonnes of raws, marking its second-largest year of imports on record (after 2020).

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