Ample sugar supplies and expectations for a better upcoming harvest dampened prices at a state sugar reserve auction that ended on Wednesday. China sold 71,323 tonnes of white sugar at an average price of 4,121.5 yuan ($516) per tonne, a fall of 6.2 percent from a similar auction last week.
The sugar had been refined from Cuban sugar purchased under a government-to-government agreement. Traders expect the country's 2007 sugar production to rise due to better weather in the top sugar cane-growing region of Guangxi. A persistent drought last year had reduced sugar output.
Beijing has vowed to bring down domestic sugar prices, which hit a record high earlier this year, by releasing 1.1 million tonnes of sugar from state reserves. "The government measures to cap prices have worked very well and we expect prices to slide further," said one trader.
Wednesday's auction price was the lowest of nine auctions of state sugar reserves held this year. Food firms mainly from southern province of Guangdong bid between 4,090 yuan and 4,150 yuan per tonne for sugar for delivery in August and September, according to the Guangxi Sugar Exchange. "The market is about balanced with state reserve sales, and there should be no more shortfalls in supplies," said one trading manager at a state-owned firm.
Traders estimated sugar mills still hold some 2.0 million tonnes of stocks, enough to meet demand in the coming three months before October, when sugar mills start producing new sugar.
Guangxi, which produces 60 percent of the country's sugar, is likely to produce as much as 2.0 million tonnes more sugar next year because of better weather and expanded planting acreage, traders said. China's sugar output fell 3.9 percent to 8.82 million tonnes in the year ending in September because of a persistent drought in southern cane-growing areas.