China - Opportunity for Indian Sugar

China is expected to produce 2.65% more sugar in 2007- 08, after a record of 12.6 million tonnes in 2006-07. Total production is forecasted at 12.95 million tonnes. Total consumption is expected to rise by 7.1% to 12.85 million tonnes. High corn prices forced the food and beverage industry back to natural sugar instead of corn sweetener, which had captured market share in previous years. Chinese sugar consumption is growing rapidly this year, particularly from the food and soft-drink industries. Record high production domestically has reduced the imports of the commodity. Imports in 2007-08 are estimated to drop by 10.5% to 8, 50, 000 tonnes. Of the total imports likely to take place in 2007-08, Chinese importers for the first time have braved maximum tariffs to buy cheap Indian Sugar. Chinese buyers have bought around 1 lakh tonnes of Indian at a tariff rate of 50%, assessed on imports that do not fall within the tariff rate quotas (TRQ) system agreed when China joined the WTO. Normally, Chinese mills and traders do not import unless they hold the quotas for the lower tariff rate of 15%. This year, Beijing only granted 30% of its 1.945 million tonnes of TRQs to private companies. Many of the remaining quotas, granted to state-owned firms, have yet to be issued. Two cargoes of Indian white sugar totaling 60000 tonnes have already been imported under the higher tariff being offered at 3,950 Yuan ($525) per tonne in the Northern port city of Tianjin. The price has been cheaper than sugar from the top producing region, Guangxi, offered at 4,040 Yuan per tonne. The recent freezing temperature in the Guangxi region, China's major sugar growing region, may see an overall drop in china’s sugar production by about 5 lakh tonnes this year. This has also led into a price rally on the international bourses off lately sending the contract prices on multiple month high levels.