China may slash by up to 60 percent the amount of sugar to be auctioned from state reserves as a consumer switch to cheaper sweeteners lowers demand.
Domestic sugar consumption in the year ending in September could fall below the previous year's 10.5 million tonnes, industry officials said, as high prices this year force food and beverage firms to switch to cheaper corn sweeteners.
Lower-than-expected domestic production was keeping sugar expensive for the food industry.
China said earlier it would release an additional 1 million tonnes of raw sugar from state reserves to help cool domestic prices. Refiners would bid for the right to process the sugar, which the government would then hold for future sale.
Now China planned to release only an extra 200,000, in addition to the 400,000 tonnes to be auctioned in March, unless domestic sugar prices spiked again, industry officials said.
"It is still uncertain whether the 200,000 tonnes would be released from state reserves after 400,000 tonnes are released to sugar mills to refine," one Guangxi sugar exchange official said, citing recent comments by the China Sugar Assocation.
Sugar demand might recover as the mid-year peak consumption period approaches.
"It is the off-season for sugar consumption. We expect purchases to be active after May," said analyst Xiao Fengbo at Yide Futures Co in Beijing.
Sugar prices in China reached historic highs in February as fund investment lifted international futures. But domestic futures, launched in January, quickly fell back from their early February peak of more than 6,200 yuan per tonne.
Some Zhengzhou white sugar futures contracts rose by their 4 percent daily limit on Wednesday, supported by gains in New York raw sugar futures. Zhengzhou's most active September contract closed at 5,210 yuan.
China should produce about 9.0 million tonnes in the year through September, the same as the previous year, according to China Sugar Association forecasts, but that estimate could change by 100,000 tonnes or so as sugar mills in southern areas of Guangxi and Yunnan will be crushing until May.
Late last year the association had projected output of 9.8 million tonnes during this marketing year.
"Production is getting more clear, output will decrease (from earlier estimates) and mills believe sugar prices in the rest of the year should stay strong," an official at the Guangxi sugar exchange said.
The China Sugar Association estimates imports this year at 900,000 tonnes, including 400,000 tonnes of raw sugar from Cuba under a bilateral agreement.
Traders did not expect sugar mills to import additional sugar for domestic sale because of unprofitable refining margins on imported raw sugar.
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