China sold its first batch of state sugar reserves in five years on Friday at a 15 percent premium to the minimum price set by the government on buoyant demand from buyers, two sources who took part in the auction said. Prices were higher than market participants had expected as food manufacturers snapped up shipments from the reserve because of falling domestic output in the world's top consumer of sugar, analysts said.
The China Merchandise Reserve Management Center said in a statement on its website on Friday it sold the full 200,000 tonnes of white sugar it had put up for auction, but an official at the centre declined to confirm the prices. The two sources said the auction prices were an average of 6,900 yuan ($1,018) per tonne.
Li Yongling, sales head at Shangdong Xingguang Sugar, a sugar processor and trader, said his firm bought about 10,000 tonnes at an average price of about 6,900 yuan per tonne in the auction. He only bought what he needed to fulfil customers' orders. "We did not buy a lot this time since the price was high," he told Reuters on Tuesday. A second source who declined to be named because he is not authorised to speak to the press told Reuters on Monday he also paid about 6,900 yuan for an undisclosed volume.
The sale was only a small portion of the total reserves, which are estimated at some 7 million tonnes, about one year's worth of the country's imports. Two traders that participate in the market said the sales level was largely in line with physical prices in some sugar-producing regions. The auction prices were higher than the 6,100 yuan paid by the government three years ago in its last reserve purchase.
Zhan Xiao, a sugar analyst at Shanghai Buyun Investment Management, said the auction prices were higher than expected as consumers are having to wait for fresh supplies from the new sugarcane crop, which is being harvested this month, to hit the market. The robust up-take and higher prices may quell some analysts' concerns that the auctions, announced a month ago, would unleash supply onto the market and lower prices.
The timing of the next tender has not been announced. On Tuesday, the most-active January sugar futures contract was down almost 1 percent, its third straight session of losses and on track for its biggest one-day drop since mid-July, taking its lead from the US and European markets.