Sugar Prices Drop Amid Chinese Crackdown on Smugglers

By Carolyn Cui Features Dow Jones Newswires

Sugar prices fell Wednesday, as China's crackdown on sugar smuggled from Myanmar added concerns to an already oversupplied market.

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Raw sugar for July lost 1.5% to 13.40 cents a pound on the ICE Futures U.S. exchange.

Chinese authorities continued to crack down on the smuggling of white sugar from Myanmar with seizure of sugar and the freezing of some 1,000 bank accounts by the Chinese government, many belonging to Myanmar citizens, according to Sucden Financial Research, citing Yunnan Sugar Network.

"As the Chinese government is tightening the border controls, a lower quantity of sugar from Myanmar will be smuggled. Then smugglers have to find other solutions to put this sugar into China," said Claudiu Covrig, a senior agriculture analyst at Platts Kingsman, a unit of S&P Platts. But there are few alternative routes for Myanmar smugglers.

"If you can't smuggle so much sugar into China, then you'll have extra white sugar in that area," he said.

Sugar smuggling into China has increased dramatically over the past few years, with Mr. Covrig estimating that about 2.2 million tons of white sugar would be smuggled into China this year. That had reduced China's demand for raw sugar, which is used to be processed into refined sugar.

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Last month, the Chinese government also imposed hefty penalties on sugar imports, charging up to a 95% duty for out-of-quota imports, to discourage imports. Beijing was under pressure to help its domestic sugar mills that were facing competition from cheap imports from Brazil and Thailand.

Adding to the bearish sentiment, weaker oil prices globally is driving down gasoline prices in Brazil, which would reduce the chances for sugar mills there to switch from sugar to ethanol.

In Brazil, sugar production is well behind last year's unusually swift start, but the Brazilian Sugarcane Industry Association predicted that sugar production will only decline marginally from the previous year's record level. Despite a 30% drop in sugar prices from a year ago, many Brazilian mills would continue to produce sugar as they already locked in prices when they were higher. But the tumbling sugar prices proved to be painful for small producers who were largely receivers of market prices.

Price Futures Group warned that demand for sugar could soon see a short-term increase as Ramadan is ending, which could provide buying interest to restocks in Muslim countries. Ramadan ends the evening of June 24.

In other markets, cocoa for September dropped 2.6% to $1,868 a ton, arabica coffee for July was down 1.9% at $1.2230 a pound, frozen concentrated orange juice for July lost 3.8% to $1.3040 a pound, and December cotton fell 1.1% to 68.21 cents a pound.

Write to Carolyn Cui at carolyn.cui@wsj.com

(END) Dow Jones Newswires

June 21, 2017 11:42 ET (15:42 GMT)