The Chinese Yuan has strengthened 6% in the past four months, increasing the attractiveness of raw sugar imports.
With this, China’s refineries are keen to import more raw sugar whilst the import parity is appealing.
However, the Ministry of Commerce continues to delay the issuance of the additional import licenses, meaning they are unable to do this.

The Chinese Yuan Appreciates, Incentivising Raws Imports

The Chinese Yuan has strengthened 6% in the past four months, meaning raw sugar imports are now more viable.

Import parity currently sits at $123/mt (USD) and should stay positive until the No.11 breaks above 15c/lb, as sugar prices are supported above 5200 Yuan (the mills’ cost of production).

With these healthy margins, China’s refineries are now looking to buy more raw sugar.
This is because many chose not to build stocks for 2021 when the spreads for the Oct’20 and Mar’21 contracts were near the cost of carry at -70pts.

But Importing is Proving Difficult…

China’s refineries want to import more sugar whilst prices incentivise it but are unable to do so until more licenses are issued.
However, the Ministry of Commerce is taking it slow, meaning we are unsure how much more they will be able to import.
So far, 16 refineries and four trade houses have had their annual processing capacity of 6.9m tonnes registered, meaning 3.45m tonnes of additional imports could be granted for 2H’20.

However, we suspect that somewhere between 0.5-1m tonnes will actually be issued between now and the end of the year.
If so, China’s refineries will have received somewhere in between 3.35-3.85m tonnes of additional import licenses in 2020, down from our previous 5m tonne estimate.
That being said, China’s raws demand could remain firm in Q4’20 with 0.5m tonnes raws nominated so far; some Chinese trade houses think this volume to increase to 1m tonnes.
This means the annual raws demand could be 4.2m tonnes and over 1m tonnes of bonded raws will be carried into 2021.

The Chinese Yuan has seen a sizeable appreciation since Jun’20, from 7.18 to 6.75 (up 6%).
Goldman Sachs thinks the Yuan will reach 6.50 per dollar in the next 12 months.
This means the raw sugar import parity will remain supported.