- Smuggling into China has been reduced due to tight border surveillance.
- Thai mills to reduce their remelt, increasing raws availability for 2019.
- Future smuggling flows depend on Myanmar’s transit license issuance.
First time in four years
Cumulative Shipment Flow into Smuggle Routes
- Smuggling offtake has been the slowest in 4 years; reducing demand for Indian and Thai whites.
- We think smuggled flow this year will be 2m tonnes; down from 2.5m tonnes last season.
- There is a risk that the smuggle flow might not catch up to our current forecast if transit licenses in Myanmar are delayed or lower than expected.
Attention is on Myanmar
Smuggled Volume by Origin
- Last year, 800k of transit licenses, which are used to legally import sugar into Myanmar and across the Chinese border, were issued.
- Myanmar’s trade minister has since been relieved of his duties over his alleged involvement in the sugar re-export trade.
- From our understanding, no new minister has been appointed yet.
- Some smuggling flow could be sustained through a drawdown in the 17 months’ worth of stocks we see in country.
Less Arb-driven, more opportunity-driven
- Whilst the smuggle arb is still attractive at $150/mt levels, tight Chinese border surveillance means there has been less opportunity for smugglers to bring sugar across the borders.
Reduced Thai Remelt
Thai Remelt of Raws into Whites by Season
- Post production season, Thailand mills determine how much raws to remelt into refined and white sugar.
- Last season, Thai mills had the maximum remelt of 4m tonnes.
- This year, we think Thai mills will remelt 3m tonnes; the lowest in five years.
- Thais have been struggling to export whites this year and pressured cash flows have incentivised raw sugar production over whites for exports.
