China will stockpile 1 million tonnes of white sugar in state reserves, buying from the domestic market to stabilise prices of the sweetener and protect farmer interests, the country's top planning body said. The government will buy an initial 500,000 tonnes at 6,550 yuan ($1,000) per tonne from Friday, the National Development and Reform Commission said on its website (www.ndrc.gov.cn).
Investors in the domestic futures market have been expecting the stockpiling plan since early January after domestic white sugar prices fell below production costs for mills, which could prompt mills to suspend operations and hurt sugarcane farmers. The most-active September 2012 contract at the Zhengzhou market was traded at a more than two-month high on Wednesday to close at 6,614 yuan per tonne, 1 percent higher than the price offered by the government. "The policy has set the bottom price for domestic sugar, aiming to encourage farmers to continue to grow. But the government may not be able to buy that much at the price it offers," said Liu Yonghua, an analyst with Wanda Futures Co based in the country's top sugar region of Guangxi.
Beijing has been stockpiling farm products, including grains, soy, cotton and sugar, with government-set prices above farmers' planting costs. The government releases its reserves whenever domestic prices rise above what the government can tolerate. During the year to September 2011, the government released a total of 1.88 million tonnes of sugar from state reserves to cool record sugar prices, reducing state stocks and prompting a record volume of imports in 2011. China's sugar imports in 2011 surged 65 percent on the year to 2.92 million tonnes. Domestic sugar production falls short of China's needs, with a deficit of about 2 million tonnes estimated for this year, which needs to be covered with imports, analysts said.