On February 8, 2012, the National Development and Reform Commission (NDRC), Ministry of Commerce (MOFCOM), Ministry of Finance (MOF), and Agricultural Development Bank of China (ADBC) jointly issued the "Notice on Issuing the First Batch of National Temporary Sugar Reserve Plan for the 2011/2012 Season," officially launching the national temporary reserve plan.
The policy document indicated that the national temporary sugar reserve plan for the 2011/2012 season would be initiated on February 10, 2012. The quantity was provisionally set at 1 million tons, with the first batch planned to be 500,000 tons. The sugar to be stored must be granulated white sugar produced after October 2011, with quality conforming to the People's Republic of China National Standard GB-2006 Grade One or above. The base storage price was set at RMB 6,550 per ton (Nanning carboard delivery price, tax included), plus transportation costs to the designated warehouse, which would serve as the maximum settlement price for delivery to the warehouse. This storage process would be conducted through public bidding at the Beijing Huashang Reserve Commodity Exchange. Sugar companies were required to submit bids in multiples of 300 tons. The storage followed an inspection and acceptance system upon arrival at the warehouse. The funds and related fees required for storing domestically produced sugar would be arranged by the Agricultural Development Bank of China according to relevant policies. After a successful bid, the Huashang Reserve Commodity Management Center would settle payments to suppliers according to relevant regulations and the winning bid price. Additionally, the bidding rules were designed to limit the highest price and accept the lowest bids, aligning with the macro-control expectations of stabilizing the market and balancing production and sales. In essence, the state also intended this as a trial measure.
The results of the storage transactions showed: On February 10, 2012, the first batch of domestic white sugar storage bidding for the 2011/12 season accumulated a total transaction volume of 163,200 tons out of the planned 500,000 tons. The highest warehouse point transaction price was RMB 6,930 per ton, the lowest price was RMB 6,600 per ton, and the average price was RMB 6,785 per ton. The initial target of 500,000 tons was not reached. According to the storage rules, two public bidding sessions would be held each month until the 500,000-ton quota was filled, occurring on the second and fourth Thursdays of each month (postponed if holidays occurred) from 9 am to 5 pm. On February 23, 2012, the state continued with the remaining 337,000 tons of competitive storage transactions until the first batch of 500,000 tons of domestic sugar was fully stored. Actually, the second storage session ended at 9:40 am on the same day, with a total storage volume of 55,000 tons. The highest warehouse price was RMB 6,820 per ton, and the lowest warehouse price was RMB 6,600 per ton. Shandong showed significant willingness to store, and due to reasonable price differences, more sugar was stored in Deyang, Sichuan. Neither of the two consecutive storage sessions reached the initial 500,000-ton storage quota.
Policy Interpretation: From the perspective of the state, the main policy objective is to stabilize sugar prices, protect farmers' interests, and maintain production enthusiasm. Indeed, subsequent spot sugar price performances have shown the effect of stabilizing spot sugar prices. From the perspective of sugar companies operating in the spot market: under the current situation where market purchases and sales are basically stagnant, the state buys the spot goods at the current market spot transaction price, which can be understood as a hedge against the 1 million tons of over-quota imported sugar from last year; the fact that neither of the two consecutive storage sessions reached the initial 500,000-ton storage quota indicates that sugar companies are optimistic about future spot sugar prices. Regarding alternative considerations for sugar companies submitting storage: if they are actively storing, it suggests relatively pessimistic expectations for spot sugar prices. Once a market consensus forms, Zhengzhou sugar will undoubtedly become a pioneer, potentially leading to further declines in Zhengzhou sugar prices, influencing spot price trends, prompting customers to hold cash and wait, making spot purchases and sales even more passive, and causing sugar company interests to be damaged again. In reality, both sides are engaging in psychological games. From the perspective of interest orientation, the state temporarily stands on the side of sugar companies, indirectly supporting sugarcane farmers by paying attention to sugar company interests. Only when sugar companies make profits can sugarcane farmers' incomes be guaranteed. If the two major entities in the sugar market have temporarily aligned interests, there won't be much room for a deep correction. The current sugar market's resistance to deep corrections also considers these factors. Moreover, if Yunnan's drought worsens significantly affecting production, both sides may use the Guangxi Sugar Conference to speculate on production expectations, possibly leading to another wave of market activity later on.
Implications for this round of market movements for our sugar market investors: the structure of sugar market participants has changed. The state has placed sugar materials on par with basic commodities such as grain, cotton, and oil, reducing the absolute price fluctuation space in the future sugar market. More likely, the market will fluctuate between policy-supported highs and lows. What we need to do is understand the state’s positioning of the sugar market industry chain and its expected policy target prices, seeking investment opportunities in short-term trend movements within the large range of market conditions.
(CIS)
■ Galaxy Futures Jin Qinghui F0263786
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