After lobbying by domestic mills, China said on Monday it will impose hefty penalties on sugar imports. But to stem the flow of lower-priced sweetener into the world’s top importer, the ruling may not go far enough, experts said.
An extra tariff for the next three years was imposed on shipments by the ruling that the government said had “seriously damaged” the domestic industry and is expected to affect about a third of China’s annual sugar imports.
As it will close the big gap between Chinese and international prices, the move could dent imports from top growers such as Brazil and Thailand. Compared to the London market, Chinese sugar prices are around double.
While some imports from major producers may be shipped through third-party nations excluded from the tariffs, traders said the higher tariffs will also likely spur increased smuggling across China’s porous southern border.
Given the higher costs of its smallholder farmers, who produce about 10.5 million tonnes of cane and beet sugar a year, sugar is one of the few sectors in which China struggles to compete.
While Beijing has been trying to crack down on illegal shipments of as much as 2 million tonnes a year, the country imports another 3 million tonnes of the sweetener a year.
“While smuggling has temporarily slowed, there is a risk that the incentives for smuggling are still strong and in fact could increase if domestic prices rise,” said Tom McNeill, director of Green Pool Commodities in Brisbane.
Including smaller producers such as the Philippines and Pakistan as well as Myanmar on its southern border, the latest ruling exempted about 190 smaller countries and regions from the new duty.
“Of course it will support the domestic industry for a short time,” said a China-based trader. “(But) the global raw sugar market just needs to drop a little below 15 cents” to make it profitable to import into China.
Global raw sugar prices SBcv1 were at 17 cents per lb on Friday.
As part of its commitment to the World Trade Organization, China currently allows 1.94 million tonnes of imports at a tariff of 15 percent.
Imports beyond this attract a 50 percent levy. China’s Commerce Ministry said in a statement, that the total will now be 95 percent after Monday’s ruling which will add an extra 45 percent duty to these imports in the current fiscal year. This will fall to 90 percent next year and 85 percent a year later.
Pressure on Beijing to sell more of its state reserves to prevent supplies tightening and prices spiking may also be exerted by the measures.
As traders interpreted the move, which was in line with a draft proposal issued in April, as too lenient to staunch shipments, sugar futures CSRcv1 initially fell more than 1 percent on the news.
The impact of the duty was played down by Thailand, the world’s third largest producer.
Viboon Panitwong, chairman of the Thai Sugar Millers Corp Ltd, who did not expect the duty to significantly affect sugar exports, said that compared to rivals, Brazil and Australia, its millers have a much lower shipping cost to China.
(Adapted from Reuters)