Asian sugar market in 2022 will witness a strong comeback from Thailand

Thailand's sugar output in the 2021-2022 crop year (October-September) is forecast to improve sharply thanks to increased rainfall in September, expected to bring output between 9.5 and 11 million tonnes of sugar.

Weather conditions this year have been much better. During the sugarcane growing period, rainfall was about 15% higher than last year in the country's major sugarcane growing regions.

S&P Global Platts Analytics estimates Thailand’s sugarcane production in the 2021-2022 marketing year will reach 95 million tonnes and sugar production will be 10.5 million tonnes. Sugar exports in this season are forecast to increase by 3.8 million tonnes from the previous season to 7.5 million tonnes.

Harvesting sugarcane at Song Con Sugar Factory, Tan Ky (Nghe An). Photo: QA

High shipping costs

Refined sugar is transported in containers, which are the carriers’ reliance on, and have recently been plagued by port congestion and other risks in the logistics chain. Spot sugar prices are currently flat, while futures prices are high, so freight rates will be the main factor influencing CFR prices at the point of delivery.

Container freight rates in Asia have increased by about 3-4 times compared to before. Therefore, some customers do not want to accept the increased costs and there is no reason to rush to buy sugar because there is not much sugar shortage.

Raw sugar traders said the recent drop in bulk freight rates from record highs has supported export prices to major importers such as Indonesia. Dry bulk freight rates fell by about 20% in the last weeks of November and early December, with rates for a Handysize vessel from Thailand to Indonesia at $27.50 a tonne on December 14, compared with a record high of $35 a tonne on October 14.

Sugar production at Song Con Sugar Factory. Photo: Cam Tu

Demand from Indonesia

Indonesia, which usually imports more than 2 million tons of raw sugar from Thailand each year, imported only 819,031 tons from January to October this year, down about 61% from the same period last year, according to data from Thai Sugar Milling Corporation Limited. One factor contributing to the decline in imports is the decline in sugar consumption in Indonesia due to travel restrictions to prevent the spread of the Covid-19 pandemic. In addition, the appearance of Indian and Brazilian raw sugar in the Indonesian market is also one of the reasons for the decrease in Thai sugar imports.

However, market sources expect Thai sugar to regain export competitiveness by 2022.

Raw sugar traders say Thailand is much closer to Indonesia (than India and Brazil), so the freight advantages will help Thai sugar exports rebound strongly. The freight differential between Brazil and Thailand to Indonesia is about $30/mt, based on Platts data.

Expectations for the Vietnamese market

Vietnam on June 16 imposed anti-dumping and anti-subsidy taxes on cane sugar imported from Thailand at 47.64% for 5 years, starting from June 16, 2021, after more than 1 year of investigation on this issue.

Some sources in Thailand said that Vietnam may expand the scope of anti-dumping policy to sugar imported from other ASEAN countries eligible for 5% tax under the ASEAN Trade in Goods Agreement or ATIGA, such as Indonesia, Malaysia, Cambodia, Laos and Myanmar, in an effort to reduce competitive pressure from imported sugar on Vietnam's domestic sugar prices and promote domestic production.

"If we impose tariffs on sugar originating from ASEAN, we will consider Thai sugar as imported sugar, similar to other ASEAN countries," Spglobal quoted a Vietnamese trader as saying.

Market sources said that the tax rate imposed on other ASEAN sugar products will be close to the 47.64% tax rate imposed on Thailand, which may help Thai sugar regain market share in the Vietnamese market by 2022.

“Vietnam still needs to import sugar so the formulation of this policy will be an important factor (for Thai sugar) in 2022 as it could push up Thailand’s spot sugar premium from now,” a Singapore-based trader said.