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DJ China Sugar Prices Rally On Weather; Reserve Sales Likely78 days ago
SINGAPORE (Dow Jones)--Sugar prices in China have rallied in the past month on expectations that erratic weather conditions will affect production, and analysts said a sustained increase will likely prompt the government to sell state reserves.
Cash prices in China's top sugar-producing region, Guangxi, rose by around 5% since late October to about CNY4,350 ($637) a metric ton Monday.
"Domestic cash prices are expected to rise further, given the supportive fundamentals," said Chen Shuqiang, an analyst at Great Wall Futures in Shanghai.
Local analysts have estimated a deficit of 2 million tons in the 2009-10 crop year, starting Oct. 1, given the latest forecast of 12 million tons of output by the China Sugar Association and an assumption of 14 million tons of consumption.
As winter arrived unusually early this year, and major growing regions, such as the Yunnan province, was hit by a drought, industry participants are very concerned about the eventual output, said Chai Ning, an analyst at COFCO Futures.
The erratic weather conditions have also attracted speculative money into the futures market recently amid good sales during the harvest time, which runs from November through to April, analysts said.
The benchmark September 2010 sugar futures traded on the Zhengzhou Commodity Exchange settled at CNY4,992/ton Monday, up 2.2% from Friday's settlement.
However, industry participants said that a quick rally and high prices could eventually prompt the government to intervene in the market by selling state reserves.
At a recent industry conference, an official has proposed that if sugar prices rise above CNY4,500/ton, it is necessary for the government to start selling reserves to stabilize the market price, said Chen.
China had bought 800,000 tons of sugar for state reserves in 2007-08 in the hope of protecting farmers' income, when the prices were low.
-By Helen Sun, Dow Jones Newswires; (65) 6415-4086; helen.sun@dowjones.com
(END) Dow Jones Newswires
November 23, 2009 02:35 ET (07:35 GMT)
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