Friday, February 27, 2009
Career Opportunities in Equity Research
Know your career in equity research in India.If you want a dynamic career, just go through the slides.
Wednesday, February 25, 2009
Review of World Sugar Industry
Executive Summary
World sugar production for the 2008-09 marketing year is forecast at 158.8 million tons, raw value, down 7.9 million from the revised 2007-08 estimate. Consumption is forecast at 162.1 million tons, up 5 million from a year earlier. Exports are forecast at 48.2 million tons, down 2.8 million; and ending stocks are forecast at 38.6 million tons, down 4.1 million.
Forecast changes in 2008-09 world production and trade are highlighted by a slightly higher production in Brazil, at 32.4 million tons, up 350,000 tons. Brazil accounts for 20 percent of world production, but Asia accounts for nearly 40 percent. Forecast production in Asia is down by 6.6 million tons to total 62.5 million. Production in India for 2008-09 is forecast at 22.9 million tons, down 5.7 million, China at 15.8 million, down 113,000, and Thailand at 7.9 million tons, up 80,000. Production in the EU is forecast to decline by 814,000 tons. In 2008-09 the EU is forecast to be a net sugar importer of 2.3 million tons. Exports from Brazil for 2008-09 are forecast at 20.3 million tons, up 500,000 from 2007-08. Brazilian exports during the last year were off from expected levels due to relatively low prices, in relation to production costs (a consequence of dollar devaluation), high freight rates, competition from India in near east markets, high oil prices and high domestic ethanol demand. Thailand is forecast to export 5.1 million tons, up 200,000 from the previous year, and India may export 300,000 tons, a decline of 4.6 million from last year. Exports from Australia are forecast at 3.9 million tons up of 200,000 tons.
World sugar raw prices dramatically increased during the first six months of 2007-08 reaching over 15 cents/lb in March before declining to present levels ranging between 11 and 12 cents/lb. Consumption looks to continue to outstrip production as we move into the 2009-10 marketing year. However pricing is difficult to predict as the market seems to be driven by macro-economic factors as much as fundamentals.
Prices rose steeply, in early 2008, despite evidence of unusual surplus production. By March it was clear that managed investments, depreciating US currency, and high energy prices, controlled the market rather than existing fundamentals. The steep devaluation of the US dollar over the first six months appreciated the cost of sugar in major producer countries as well as the price to importers. For a while the costs of production were higher than the world price. At that point sugar became attractive to index funds and spectators.
The situation began to ease in early April. Sugar followed the trend as other commodity markets began to fall. The pattern was reinforced by lower energy prices, appreciation of the US currency, and a deteriorating outlook for equities and bonds. World sugar price began to fall to its current level, trading between 11.5 and 12 cent/lb.
Highlights of the Major Producers
Along with India, Brazil, Thailand, and China account for 50 percent of world production and 56 percent of world exports.
India
Sugarcane and sugar production in India typically follows a 6 to 8 year cycle, wherein 3 to 4 years of higher production are followed by 2 to 3 years of lower production. Two consecutive years of record sugar production (2005-06 and 2006-07) resulted in abnormally large stocks and low prices, setting in motion the downtrend in sugar cycle in 2007-08, which is expected to continue downward in the upcoming 2008-09. Delayed cane price payment to farmers, coupled with relatively higher prices of food grains (wheat, rice, maize, and pulses) vis-à-vis sugarcane, resulted in farmers shifting acreage from sugarcane to food grain crop rotations (e.g.: rice-wheat). Consequently, sugarcane area in 2008-09 has declined sharply by 16 percent over last year’s record cane planted area to 4.4 million hectares. Late cane price payments also resulted in lower input (fertilizer-pesticide-irrigation) use by the farmers, which will adversely affect the yields. Heavy rains and floods during July-August in the northern states have also adversely affected cane yield prospects. Consequently, 2008-09 centrifugal sugar production is forecast to decline to 22.9 million tons, nearly 25 percent lower than last year.
After a gap of three years, India is set to emerge as a net sugar importer in 2008-09 due to the expected shortfall in domestic sugarcane and sugar production. Forecast imports for 2008-09 are raised to 1.0 million tons and exports lowered to 300,000 tons due to tight domestic supplies and expected relaxation in government’s policy for imports of raw sugar. Although the existing high import duty does not offer any significant import opportunities at the current parity between domestic and global sugar prices, industry sources expect the government to relax conditions for imports of raw sugar under the advance licensing scheme. With domestic sugar prices well above international prices, Indian sugar mills will find it advantageous to import raw sugar, refine, and sell the refined sugar in the domestic market during the upcoming season against future (2-3 years) refined sugar exports commitments. The government may assess the cane supply situation to the local sugar mills during the beginning of the crushing season before taking a decision.
India’s ethanol program is based on producing ethanol from sugar molasses, a by-product of the sugar industry and not directly from sugarcane or corn as in most countries. In September 2006, the GOI launched the second stage of the ethanol blend program (EBP) targeting five percent blending of petrol with ethanol, if commercially viable, across 20 states and four Union territories with effect from November 2006. However, there have been difficulties in implementing the program due to higher prices demand by ethanol suppliers (local sugar mills) and issues of high taxes and levies in several states. While the petroleum product marketing companies floated tenders and agreed to purchase ethanol from domestic supplies at Rs. 21.50 in late 2006, the slowdown in sugar production since 2007-08 and consequent decline in molasses production has raised the molasses prices to levels at which the sugar industry cannot supply ethanol at the pre-negotiated prices. Consequently, the ethanol blending program is running only at about 30 to 35 percent of the overall target.
Brazil
Brazilian 2008-09 sugarcane production is 555 million metric tons (mmt), up 5 million from previous estimate, due to improved stock development in the North-Northeast. The harvest season is progressing well in the center-south states and the end of crushing is expected in December. It should be noted that final crush will be heavily influenced by the timing of the rainy season’s arrival. Rains may begin any time after about November 15, and each day of additional crush adds about 3 million metric tons (mmt) to the year’s total sugarcane processing.
Not all 32 sugar-ethanol mills scheduled to start crushing this season are in operation and some started operations later than expected, thus 20-30 mmt of sugarcane is expected to be left in the field. Estimated sugarcane area for 2008-09 remains unchanged at 8.05 million hectares (ha). Sugarcane harvested area is forecast at 7.4 million ha. Agricultural yield for 2008-09 at 75 metric tons (mt)-hectare (ha), slightly down from 2007-08 (75.5 mt/ha). The industrial yield is estimated at 141 kg of TRS (total reducing sugars)/mt of sugarcane, down 2 percent from last year (143.64 kg TRS/mt). Total sucrose (total reducing sugar, TRS) content destined for sugar and ethanol production is estimated at 40.5 and 59.5 percent, respectively, a significant change from previous season (45.5 and 54.5 percent, respectively). Industry has steadily diverted an increasing share of sugarcane toward ethanol production due to strong domestic demand for the product and less attractive sugar prices. Although Brazil is the largest sugar exporter, high production costs and the appreciation of the Real in the past couple of years have made the Brazilian product less competitive on the international markets. Sugar production for 2008-09 is estimated at 32.45 (mmt), raw value, similar to the previous year (32.1 mmt, raw value). The Center South states should account for 27.5 mmt, raw value, and the
North East should contribute 4.95 mmt of sugar, raw value. Total ethanol production for 2008-09 is estimated 26.85 billion liters (8.35 billion liters of anhydrous ethanol and 18.5 billion liters of hydrated ethanol), up 4.46 billion liters from previous marketing year (refer to BR8013 for more information on ethanol production). Strong domestic demand for fuel ethanol is pushing production. The steady sales of flexfuel vehicles (FFV) as well as the relative low prices of ethanol at the pump (compared to gasoline) have encouraged consumers to use ethanol. Indeed, domestic demand for ethanol for 2007-08 is projected at 22.45 billion liters, up 3.48 billion compared to 2007-08. Currently, FFV’s represent over 85 percent of new vehicle sales.
Thailand
Sugarcane production for 2007-08 and 2008-09 is revised upward, due to excellent weather and resultant yield improvements. Despite a continued acreage reduction, 2008-09 production is expected to increase slightly from the previous year due mainly to average yield improvement. Also, current flood damage is expected to be marginal as most growing areas are in the high land. However, planted areas reportedly continued to decline, particularly in the northeast, where farmers shifted to tapioca due to the near triple returns when compared to sugar. In addition, the Cabinet approval of an increase in domestic support prices for 2007-08 came after farmers finished 2008-09 cultivation. Better-than-expected sugarcane crops will result in a continued increase in 2008-09 sugar production to 7.9 million tons, up slightly from the previous year. Also, molasses production is expected to increase slightly to 3.3 million tons. Sugarcane
will primarily be utilized in sugar production as sugarcane-based ethanol production remains marginal, as compared to molasses-tapioca-based ethanol production. Daily gasohol consumption has increased to 9.1 million liters with daily ethanol production increasing to 0.9 - 1.0 million liters. Total ethanol production accounts for approximately 60-70 percent of total current production capacity from nine ethanol plants, most of which are molasses-based ethanol. Moreover, a sugar mill in the northeast that utilized 57,345 ton of sugarcane for ethanol production last year will likely discontinue sugarcane-based ethanol production due to unattractive return as 70 percent of net revenue from ethanol sales are required to be shared with cane growers through the revenue sharing system in Cane and Sugar Act. In addition, new ethanol plants established in the near future will be tapioca-based ethanol plants in anticipation of sufficient supplies of raw material, following tapioca acreage expansion and yield improvements which are expected to exceed double of current average yield. However, presently there is one sugarcane-based ethanol plans being established with production capacity of 200,000 liters-day (60 million liters-year) with daily milling capacity of 5,000 tons of sugarcane from contract farming of 60,000 rai (9,600 hectares). Production will likely start next year.
China
Sugar cane harvested area for 2008-09 is forecast at 1.62 million hectares (ha), one percent higher than 2007-08. Sugar cane area accounted for 84 percent of the total crop area sown in 2007-08. Guangxi remains the dominant sugar cane producing province, followed by Yunnan, Guangdong, and Hainan provinces. Guangxi’s output is estimated to account for 65 percent of China’s sugar cane production in 2007-08. According to Guangxi’s agricultural department, sugar cane acreage in the province will be 12 percent higher, 880,000 ha, in 2007-08. The cane yield in Guangxi is estimated at a record 73 mt/ha in 2007-08, four percent higher than the previous year. Sugar beet area for 2008-09 is forecast at 315,000 ha, five percent higher than 2007-08. To encourage beet planting, some sugar mills have raised the beet purchase price by 25 percent (to $47/mt) for the 2008-09 planting season. Some big mills in Heilongjiang province are also developing more contracts purchasing from local farmers in order to secure a long term beet supply, heavily investing in machinery for planting and harvesting, and offering better field management services to beet farmers.
However, the rising price for competitor crops, such as tomatoes and oilseeds, is making sugar beets less attractive to farmers. Increased prices for agricultural inputs are expected to reduce the profit margin for both beet farmers and mills in 2007-08. Industry sources estimate that the price for agricultural chemicals and fuels rose by 30 percent in 2007-08, while the average sugar price in 2007-08 is 10 percent lower than the previous year. During previous marketing years, beet production was far behind the millers’ processing capacity. To keep sugar beets competitive with other crops, the millers in northern China have repeatedly raised the beet purchase price.
In 2008-09, the cost of agricultural inputs, including fertilizer, fuels, and labor, are estimated to be about 40 percent higher than the previous year. Overall sugar output for 2008-09 is forecast at 15.78 mt (raw value), one percent lower than 2007-08. Cane sugar output for 2008-09 is forecast at 14.5mmt, one percent lower than 2007-08. Beet sugar output is forecast at 1.28 mmt in 2008-09, compared to 1.26 mmt in 2007-08. The top five producing provinces are: Guangxi, Yunnan, Guangdong, Hainan, and Xinjiang. Their output is estimated to account for 95 percent of national total sugar output in 2007-08. Production in 2007-08 is estimated at a record 15.9 mmt (raw value), ten percent higher than the previous estimate due to a record yield and area expansion. In 2007-08, due to the record crop and sugar output, the central government started to purchase sugar to hold in state reserve during the processing season. In January 2008, the Ministries of Commerce and Finance and the National Development & Reform Commission jointly announced intention to purchase 500,000 mt of refined sugar from the market after January 15. The purchase price is fixed at $515-ton (RMB 3,500/ton), in reference to wholesale sugar price in Guangxi. The government designated about 20 sugar reserve warehouses in consuming regions to store the sugar. The final settlement prices at different warehouses vary in accordance with their transportation distance from Guangxi province. As the sugar price continued to fall after the government purchase, the government decided in June to purchase an additional amount of 600,000 mt at $500/ton (RMB 3,400/ton). In 2008-09, with an anticipated oversupply of sugar, the industry is lobbying the central government to continue to purchase sugar to hold in state reserve during the processing season. Imports in 2008-09 are forecast at 650,000 mt, 250,000 mt lower than the estimate for 2007-08 as a result of two consecutive years of increased domestic sugar output and accumulating sugar stocks. Imports usually start to arrive in China after the crushing season ends and the domestic price starts to increase. The tariff rate quota (TRQ) for 2008 is 1.95 mmt, with an in-quota-tariff of 15 percent. The CY 2008 out-of-quota tariff rate is 50 percent. The amount of the quota and the tariff rate has been unchanged since 2005 and will remain the same in the coming years in line with China’s World Trade Organization (WTO) obligations.
Forecast changes in 2008-09 world production and trade are highlighted by a slightly higher production in Brazil, at 32.4 million tons, up 350,000 tons. Brazil accounts for 20 percent of world production, but Asia accounts for nearly 40 percent. Forecast production in Asia is down by 6.6 million tons to total 62.5 million. Production in India for 2008-09 is forecast at 22.9 million tons, down 5.7 million, China at 15.8 million, down 113,000, and Thailand at 7.9 million tons, up 80,000. Production in the EU is forecast to decline by 814,000 tons. In 2008-09 the EU is forecast to be a net sugar importer of 2.3 million tons. Exports from Brazil for 2008-09 are forecast at 20.3 million tons, up 500,000 from 2007-08. Brazilian exports during the last year were off from expected levels due to relatively low prices, in relation to production costs (a consequence of dollar devaluation), high freight rates, competition from India in near east markets, high oil prices and high domestic ethanol demand. Thailand is forecast to export 5.1 million tons, up 200,000 from the previous year, and India may export 300,000 tons, a decline of 4.6 million from last year. Exports from Australia are forecast at 3.9 million tons up of 200,000 tons.
World sugar raw prices dramatically increased during the first six months of 2007-08 reaching over 15 cents/lb in March before declining to present levels ranging between 11 and 12 cents/lb. Consumption looks to continue to outstrip production as we move into the 2009-10 marketing year. However pricing is difficult to predict as the market seems to be driven by macro-economic factors as much as fundamentals.
Prices rose steeply, in early 2008, despite evidence of unusual surplus production. By March it was clear that managed investments, depreciating US currency, and high energy prices, controlled the market rather than existing fundamentals. The steep devaluation of the US dollar over the first six months appreciated the cost of sugar in major producer countries as well as the price to importers. For a while the costs of production were higher than the world price. At that point sugar became attractive to index funds and spectators.
The situation began to ease in early April. Sugar followed the trend as other commodity markets began to fall. The pattern was reinforced by lower energy prices, appreciation of the US currency, and a deteriorating outlook for equities and bonds. World sugar price began to fall to its current level, trading between 11.5 and 12 cent/lb.
Highlights of the Major Producers
Along with India, Brazil, Thailand, and China account for 50 percent of world production and 56 percent of world exports.
India
Sugarcane and sugar production in India typically follows a 6 to 8 year cycle, wherein 3 to 4 years of higher production are followed by 2 to 3 years of lower production. Two consecutive years of record sugar production (2005-06 and 2006-07) resulted in abnormally large stocks and low prices, setting in motion the downtrend in sugar cycle in 2007-08, which is expected to continue downward in the upcoming 2008-09. Delayed cane price payment to farmers, coupled with relatively higher prices of food grains (wheat, rice, maize, and pulses) vis-à-vis sugarcane, resulted in farmers shifting acreage from sugarcane to food grain crop rotations (e.g.: rice-wheat). Consequently, sugarcane area in 2008-09 has declined sharply by 16 percent over last year’s record cane planted area to 4.4 million hectares. Late cane price payments also resulted in lower input (fertilizer-pesticide-irrigation) use by the farmers, which will adversely affect the yields. Heavy rains and floods during July-August in the northern states have also adversely affected cane yield prospects. Consequently, 2008-09 centrifugal sugar production is forecast to decline to 22.9 million tons, nearly 25 percent lower than last year.
After a gap of three years, India is set to emerge as a net sugar importer in 2008-09 due to the expected shortfall in domestic sugarcane and sugar production. Forecast imports for 2008-09 are raised to 1.0 million tons and exports lowered to 300,000 tons due to tight domestic supplies and expected relaxation in government’s policy for imports of raw sugar. Although the existing high import duty does not offer any significant import opportunities at the current parity between domestic and global sugar prices, industry sources expect the government to relax conditions for imports of raw sugar under the advance licensing scheme. With domestic sugar prices well above international prices, Indian sugar mills will find it advantageous to import raw sugar, refine, and sell the refined sugar in the domestic market during the upcoming season against future (2-3 years) refined sugar exports commitments. The government may assess the cane supply situation to the local sugar mills during the beginning of the crushing season before taking a decision.
India’s ethanol program is based on producing ethanol from sugar molasses, a by-product of the sugar industry and not directly from sugarcane or corn as in most countries. In September 2006, the GOI launched the second stage of the ethanol blend program (EBP) targeting five percent blending of petrol with ethanol, if commercially viable, across 20 states and four Union territories with effect from November 2006. However, there have been difficulties in implementing the program due to higher prices demand by ethanol suppliers (local sugar mills) and issues of high taxes and levies in several states. While the petroleum product marketing companies floated tenders and agreed to purchase ethanol from domestic supplies at Rs. 21.50 in late 2006, the slowdown in sugar production since 2007-08 and consequent decline in molasses production has raised the molasses prices to levels at which the sugar industry cannot supply ethanol at the pre-negotiated prices. Consequently, the ethanol blending program is running only at about 30 to 35 percent of the overall target.
Brazil
Brazilian 2008-09 sugarcane production is 555 million metric tons (mmt), up 5 million from previous estimate, due to improved stock development in the North-Northeast. The harvest season is progressing well in the center-south states and the end of crushing is expected in December. It should be noted that final crush will be heavily influenced by the timing of the rainy season’s arrival. Rains may begin any time after about November 15, and each day of additional crush adds about 3 million metric tons (mmt) to the year’s total sugarcane processing.
Not all 32 sugar-ethanol mills scheduled to start crushing this season are in operation and some started operations later than expected, thus 20-30 mmt of sugarcane is expected to be left in the field. Estimated sugarcane area for 2008-09 remains unchanged at 8.05 million hectares (ha). Sugarcane harvested area is forecast at 7.4 million ha. Agricultural yield for 2008-09 at 75 metric tons (mt)-hectare (ha), slightly down from 2007-08 (75.5 mt/ha). The industrial yield is estimated at 141 kg of TRS (total reducing sugars)/mt of sugarcane, down 2 percent from last year (143.64 kg TRS/mt). Total sucrose (total reducing sugar, TRS) content destined for sugar and ethanol production is estimated at 40.5 and 59.5 percent, respectively, a significant change from previous season (45.5 and 54.5 percent, respectively). Industry has steadily diverted an increasing share of sugarcane toward ethanol production due to strong domestic demand for the product and less attractive sugar prices. Although Brazil is the largest sugar exporter, high production costs and the appreciation of the Real in the past couple of years have made the Brazilian product less competitive on the international markets. Sugar production for 2008-09 is estimated at 32.45 (mmt), raw value, similar to the previous year (32.1 mmt, raw value). The Center South states should account for 27.5 mmt, raw value, and the
North East should contribute 4.95 mmt of sugar, raw value. Total ethanol production for 2008-09 is estimated 26.85 billion liters (8.35 billion liters of anhydrous ethanol and 18.5 billion liters of hydrated ethanol), up 4.46 billion liters from previous marketing year (refer to BR8013 for more information on ethanol production). Strong domestic demand for fuel ethanol is pushing production. The steady sales of flexfuel vehicles (FFV) as well as the relative low prices of ethanol at the pump (compared to gasoline) have encouraged consumers to use ethanol. Indeed, domestic demand for ethanol for 2007-08 is projected at 22.45 billion liters, up 3.48 billion compared to 2007-08. Currently, FFV’s represent over 85 percent of new vehicle sales.
Thailand
Sugarcane production for 2007-08 and 2008-09 is revised upward, due to excellent weather and resultant yield improvements. Despite a continued acreage reduction, 2008-09 production is expected to increase slightly from the previous year due mainly to average yield improvement. Also, current flood damage is expected to be marginal as most growing areas are in the high land. However, planted areas reportedly continued to decline, particularly in the northeast, where farmers shifted to tapioca due to the near triple returns when compared to sugar. In addition, the Cabinet approval of an increase in domestic support prices for 2007-08 came after farmers finished 2008-09 cultivation. Better-than-expected sugarcane crops will result in a continued increase in 2008-09 sugar production to 7.9 million tons, up slightly from the previous year. Also, molasses production is expected to increase slightly to 3.3 million tons. Sugarcane
will primarily be utilized in sugar production as sugarcane-based ethanol production remains marginal, as compared to molasses-tapioca-based ethanol production. Daily gasohol consumption has increased to 9.1 million liters with daily ethanol production increasing to 0.9 - 1.0 million liters. Total ethanol production accounts for approximately 60-70 percent of total current production capacity from nine ethanol plants, most of which are molasses-based ethanol. Moreover, a sugar mill in the northeast that utilized 57,345 ton of sugarcane for ethanol production last year will likely discontinue sugarcane-based ethanol production due to unattractive return as 70 percent of net revenue from ethanol sales are required to be shared with cane growers through the revenue sharing system in Cane and Sugar Act. In addition, new ethanol plants established in the near future will be tapioca-based ethanol plants in anticipation of sufficient supplies of raw material, following tapioca acreage expansion and yield improvements which are expected to exceed double of current average yield. However, presently there is one sugarcane-based ethanol plans being established with production capacity of 200,000 liters-day (60 million liters-year) with daily milling capacity of 5,000 tons of sugarcane from contract farming of 60,000 rai (9,600 hectares). Production will likely start next year.
China
Sugar cane harvested area for 2008-09 is forecast at 1.62 million hectares (ha), one percent higher than 2007-08. Sugar cane area accounted for 84 percent of the total crop area sown in 2007-08. Guangxi remains the dominant sugar cane producing province, followed by Yunnan, Guangdong, and Hainan provinces. Guangxi’s output is estimated to account for 65 percent of China’s sugar cane production in 2007-08. According to Guangxi’s agricultural department, sugar cane acreage in the province will be 12 percent higher, 880,000 ha, in 2007-08. The cane yield in Guangxi is estimated at a record 73 mt/ha in 2007-08, four percent higher than the previous year. Sugar beet area for 2008-09 is forecast at 315,000 ha, five percent higher than 2007-08. To encourage beet planting, some sugar mills have raised the beet purchase price by 25 percent (to $47/mt) for the 2008-09 planting season. Some big mills in Heilongjiang province are also developing more contracts purchasing from local farmers in order to secure a long term beet supply, heavily investing in machinery for planting and harvesting, and offering better field management services to beet farmers.
However, the rising price for competitor crops, such as tomatoes and oilseeds, is making sugar beets less attractive to farmers. Increased prices for agricultural inputs are expected to reduce the profit margin for both beet farmers and mills in 2007-08. Industry sources estimate that the price for agricultural chemicals and fuels rose by 30 percent in 2007-08, while the average sugar price in 2007-08 is 10 percent lower than the previous year. During previous marketing years, beet production was far behind the millers’ processing capacity. To keep sugar beets competitive with other crops, the millers in northern China have repeatedly raised the beet purchase price.
In 2008-09, the cost of agricultural inputs, including fertilizer, fuels, and labor, are estimated to be about 40 percent higher than the previous year. Overall sugar output for 2008-09 is forecast at 15.78 mt (raw value), one percent lower than 2007-08. Cane sugar output for 2008-09 is forecast at 14.5mmt, one percent lower than 2007-08. Beet sugar output is forecast at 1.28 mmt in 2008-09, compared to 1.26 mmt in 2007-08. The top five producing provinces are: Guangxi, Yunnan, Guangdong, Hainan, and Xinjiang. Their output is estimated to account for 95 percent of national total sugar output in 2007-08. Production in 2007-08 is estimated at a record 15.9 mmt (raw value), ten percent higher than the previous estimate due to a record yield and area expansion. In 2007-08, due to the record crop and sugar output, the central government started to purchase sugar to hold in state reserve during the processing season. In January 2008, the Ministries of Commerce and Finance and the National Development & Reform Commission jointly announced intention to purchase 500,000 mt of refined sugar from the market after January 15. The purchase price is fixed at $515-ton (RMB 3,500/ton), in reference to wholesale sugar price in Guangxi. The government designated about 20 sugar reserve warehouses in consuming regions to store the sugar. The final settlement prices at different warehouses vary in accordance with their transportation distance from Guangxi province. As the sugar price continued to fall after the government purchase, the government decided in June to purchase an additional amount of 600,000 mt at $500/ton (RMB 3,400/ton). In 2008-09, with an anticipated oversupply of sugar, the industry is lobbying the central government to continue to purchase sugar to hold in state reserve during the processing season. Imports in 2008-09 are forecast at 650,000 mt, 250,000 mt lower than the estimate for 2007-08 as a result of two consecutive years of increased domestic sugar output and accumulating sugar stocks. Imports usually start to arrive in China after the crushing season ends and the domestic price starts to increase. The tariff rate quota (TRQ) for 2008 is 1.95 mmt, with an in-quota-tariff of 15 percent. The CY 2008 out-of-quota tariff rate is 50 percent. The amount of the quota and the tariff rate has been unchanged since 2005 and will remain the same in the coming years in line with China’s World Trade Organization (WTO) obligations.
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