Sugar prices rise - overcoming China's huge import tariff


China's lofty import tariff is not as big as it first appears.

At least, that's what sugar investors appear to believe.

Although China, the top sugar buying country, unveiled a huge rise in tariffs on sugar imports, futures in the sweetener rose on international markets, with New York futures at one point touching their 50-day moving average for the first time in three months.

'Great deal of uncertainty'

Beijing on Monday revealed it was from Monday adding an extra tariff of 45%, above the current 50%, on imports of sugar above the quota of 1.95m tonnes enforced by World Trade Organization rules.

(From May 22 next year, the increase will be 40%, on top of a scheduled levy of 35%, for a further two years.)

The move fulfilled ideas which had concerned many investors, after China's commerce ministry in September unveiled an investigation into the country's sugar imports.

The US Department of Agriculture cautioned last week of "a great deal of uncertainty in the market because of" the commerce ministry probe,

"As China is a huge sugar importer, the results of this investigation, and any possible resulting changes in import policy, could have a major impact not just on imports, but also on prices, production, and stock policies in China."

'Market is expecting renewed demand'

However, sugar futures rose despite the announcement, and revived weakness in the Brazilian real too, which shed 1.2% against the dollar, cutting the value in greenback terms of assets in which the South American country is a major force.

Raw sugar for July stood 1.0% higher at 16.56 cents a pound in late deals New York, while London white sugar futures for August added 0.7% to $468.00 a tonne.

The gains were attributed in part to the – negative - reaction of Chinese sugar futures to news of the levy which is being introduced as part of a drive to boost the country's own sugar industry.

Zengzhou sugar futures for September dropped 0.5% to 6,688 yuan a tonne, with the decline viewed as evidence that Chinese investors were disappointed that the levy was not even higher, with the proposed levels seen as still offering a chink of hope to exporters.

The closing price of the contract was, after all, equivalent to $971 a tonne, more than twice the London price.

"The recent recovery in both the August/October white sugar futures spread to almost $16 a tonne this morning and the August/July whites premium to $103 from a low of $95 last week suggests that the market is expecting renewed demand for whites" despite China's move, said Sucden Financial.

Lesson from history

Furthermore, there is an idea that a clampdown that Beijing has also ordered on China's huge illegal imports of sugar will struggle too, meaning that source of demand will remain largely intact.

"It is likely that, despite a current clamp down on smuggling, a higher domestic price would renew the activity," Sucden Financial said.

London broker Marex Spectron said: "They have made such efforts in the past, but usually the effect only lasts for a week or two before things revert to normal."


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