Chinese sugar stocks fall for the seventh year in a row – USDA

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   Porto Alegre, July 05, 2021 – Domestic supply must be stimulated before the local government authorizes a more significant increase in imports to cover the growing deficit between sugar supply and demand in China. The latest USDA biannual report brought important fundamental updates on China’s stocks and domestic demand. Basically, the Chinese market has dealt with an increase in the national cane acreage, which occurs simultaneously with a reduction in beet production. In this context, despite the decline in the supply of one of the raw material sources, in the other, there is an expansion that more than offsets the reduction in the area and volume of beet. In this context, the sugar supply scenario in China ends up showing a growth trend of only 100,000 tons or 0.95%, from 10.5 to 10.6 mln tons between the 2020/21 and 2021/22 seasons.

   This pattern of around 10.5 mln tons per crop drives the next 2021/22 season to an average supply that has been observed since the 2018/19 season when until then production hovered around 10.76 mln tons. Before that, the highlight was with the 2017/18 crop, which had a production of 14.71 mln tons. However, SAFRAS & Mercado warns that the ‘new normal’ of China’s GDP growth pattern no longer supports a supply well above 11 mln tons per crop. In the first quarter of 2021, China’s GDP showed an annual growth of 18%, but based on statistical loading compared to -6.8% in the same period of the previous year. In 2020, China’s GDP grew by only 2.3% over the average of around 6.5% between 2016 and 2019.

    Therefore, the levels of growth in sugar demand and production in China tend to be relatively moderate despite the new recovery rates to be observed in 2021. On the other hand, despite a moderate advance in supply, consumption has shown more significant growth rates. Between the 2020/21 and 2021/22 crops, demand tends to grow 300 thousand tons, or 1.94%, from 15.50 to 15.80 mln tons. This mismatch between the growth in supply and demand must impact stocks, which at the beginning of the season are already lower by 255 thousand tons or 5.50%, from 4.63 to 4.38 mln tons. The outlook for ending stocks has an even greater decline, of 355,000 tons, or 8.10%, from 4.38 to 4.02 mln tons.

    SAFRAS & Mercado warns that the pressure from stocks tends to be felt in imports next season. These must have a growth of 100 thousand tons, or 2.04%, with volumes going from 4.90 to 5.00 mln tons. With the rise in domestic demand and the decline in stocks, the stocks/consumption ratio must also decline 2.78%, from 28.28% to 25.50%, the lowest level since the 2013/14 crop. This clearly puts pressure on a greater supply in China. However, the government must first try to look for an internal solution, through the encouragement of local sugarcane production, before resorting to the foreign market. This pressure is also observed in the balance of supply and demand, with the deficit likely to increase from 5.0 to 5.2 mln tons between the 2020/21 and 2021/22 seasons.

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