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China's sugar import surge poses a few questions

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Markets, like nature, always find a way.

 

Which is why it is worth keeping a close eye on Chinese sugar, and how the country meets its demand for sweeteners.

 

The country has discouraged imports of sugar through near-halving, to 1m tonnes, the volumes allowed in under out-of-quota permits, and hiking to 95%, from 50%, the levy on these too.

 

(The tariff on the import quota of 1.94m tonnes remains at 15%.)

 

The aim of the move is to support the domestic industry, saddled with high production costs, which US officials have suggested are twice those of neighbouring Thailand.

 

But putting any market into a corset will create stress points, and unintended consequences.

 

Chinese vs world prices

 

It is not as if hunger for sugar has gone away.

 

Customs data on Thursday showed Chinese sugar imports soaring 61% year on year in October, to 170,000 tonnes.

 

But then Chinese sugar, as priced by Zhengzhou futures, is selling for more than $970 a tonne – well over double the $395 a tonne that London white sugar is priced at, and making imports look affordable even after shipping and punitive out-of-quota tariffs.

 

Sugar smuggling

 

The real test will be when permits run out.

 

Sugar smuggling was a problem even before the tightened import restrictions, and suggested by US officials potentially as high as 2m tonnes a year.

 

While China is said to have thrown extra resources at preventing sweetness trafficking, the financial incentive only looks like getting larger for trading in contraband crystals.

 

Win-win situation

 

But there could be a more welcome knock-on effect too, if the squeeze on sugar imports prompts sweetener users to seek alternatives.

 

The most common sugar replacement, high fructose corn syrup, or HFCS, is based on a commodity (in corn) of which China has an abundance – boasting more than one-third of world inventories, on US Department of Agriculture estimates.

 

China could, with its curb on sugar imports, help meet two agricultural imperatives.

 

If there is a question mark over China failing to enjoy something of a win-win situation, it is over the quality of its corn, with some talk of stocks being of poor quality, and contaminated with fungal toxins.

 

It would be far too early, though, to read too much into a quadrupling to 70,000 tonnes in China’s corn imports last month.

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