Philippines resorts to sugar, wheat imports to tackle record inflation

11.10.2018

The Philippines is easing restrictions on imports and resorting to increasing imports of sugar and grains to tackle inflation in the country.

Inflation in the Philippines reached a 9-year-high in September at 6.7%, data from the Philippine Statistics Authority showed.

The country is grappling with high inflation this year due to a slew of reasons.

The Philippine peso has weakened by 8.83% year to date at Peso 54.4190 against the dollar on Thursday, which is at over a 12-year low.

The Philippines also meets around 90% of its oil requirements from imports, with Brent crude prices at multi-year highs of $80.67/b on Thursday.

Furthermore, the introduction of the Tax Reform for Acceleration and Inclusion (TRAIN) bill since beginning of the year has increased taxes on fuel, sweeteners, tobacco products and other consumer goods.

FIRST SUGAR IMPORTS IN 2 YEARS TO EASE DOMESTIC PRICE

The TRAIN bill imposed a Pesos 6/liter ($0.12/liter) tax on drinks containing calorific or non-calorific sweeteners, and Pesos 12/liter tax on drinks containing high-fructose corn syrup, or a combination of both. Major beverage companies opted to switch HFCS with sugar in their production process after the bill was implemented.

Philippines' domestic retail prices

The average monthly retail price of refined sugar in Manila has firmed by more than 22% from the beginning of the year to Pesos 67.18/kg ($1,242/mt) in September according to Sugar Regulatory Authority data.

Average monthly retail price of raw sugar in Manila has increased by more than 20% to Pesos 56.67/kg in the same period, the data showed.

To quell the tightness in the domestic market and bolster the prices, the Philippine government in June allowed 200,000 mt of sugar imports for the first time in 2 years. The first tranche of imports did not ease prices domestically so the SRA in late September, announced another 150,000 mt tranche of sugar imports to be imported before the year end.

BUYERS TURN TO FEED WHEAT IMPORTS ON DOMESTIC CORN SHORTAGE

Adding to the ongoing inflation was the recent Typhoon Mangkhut that damaged corn production in major growing provinces, pushing up domestic prices of corn.

The typhoon is reported to have damaged approximately 50% of corn production, pushing up local prices by 2 peso/kg to 18.5 peso/kg, a buyer source in the Philippines told S&P Global Platts.

Corn production in the Philippines was pegged at 8.3 million mt for marketing year 2018/19 (July-June) by the US Department of Agriculture on September 14.

Amidst the shortage of domestic corn and restrictions in corn imports to protect domestic farmers, feed buyers have turned to international markets to import feed wheat.

"The supposedly huge harvest in October was damaged by Typhoon Ompong [Mangkhut]. A lot of the buyers are taking positions to secure supply for first quarter of next year," the Philippines buyer said.

Uncertainty around Russian wheat supply was also encouraging Philippine buyers to book cargoes in advance. Last week alone, buyers in the Philippines booked four vessels of feed wheat from Black Sea at the range of $254-257.50/mt on CFR basis for shipments in November to early February, according to S&P Global Platts deal data.

Spread: APW Wheat vs Black Sea Wheat

Feed wheat imports, with the exception of Australian-origin cargoes, face a 7% import tax into the Philippines. As a result, the price of the four Black Sea cargoes inclusive of the import tax would range at $271-275.5/mt on CFR basis.

Interestingly, Australian-origin feed wheat made a comeback in the Philippines tender on October 10, with a deal done for 55,000 mt of Australian feed wheat at $282-283/mt CFR for January 15-February 15 shipment.

The close to $7/mt premium paid for this tender compared to last week's deal, indicates that buyers are willing to pay up to secure feed supply. It also highlights the possible tightness in Black Sea feed wheat cargoes for later shipment months.

When asked why Black Sea feed wheat did not win the tender, a trader in Singapore said: "because no one was offering Black Sea [competitively]."

Lately, traders have been struggling to offer Black Sea wheat cargoes at competitive levels given the blurry outlook on Russian import restrictions.

There have been reports of 4-10 days delays at the Russian ports currently due to stricter phytosanitary checks slowing down vessel movement.

Moreover, the narrowing of the price spread between Black Sea and Australian wheat has opened up an opportunity for Australian feed wheat to compete in the South East Asian market yet again.

The spread between Platts' assessed APW wheat index versus the Black Sea 12.5% index narrowed by 28% from the year-to-date peak of $60.75/mt on September 24 to reach $43.75/mt on October 10.

While prices of Black Sea wheat hover at the current high levels, Australian feed wheat prices are under pressure on expectation of higher proportion of lower quality wheat for the upcoming harvest.

The spread between Australian Premium White and Australian Standard White wheat is at a historically wide level of $7/mt, with sources indicating the spread could be as wide as $10/mt for APW versus feed wheat with no protein guarantee.

Meanwhile in the Philippines, there are talks that the government restriction on corn imports may be eased with the possibility of allocation increasing from the current volume of 200,000 mt annually, sources said. However, no official announcement has been made to date.

 

spglobal.com

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