Sugar industry eyes solid 2021 after bitter year
Sugar industry eyes solid 2021 after bitter year
The prospects for the domestic sugar industry look brighter this year due to efforts to control smuggling and the imposition of duties on sugar imported from Thailand.
A report from SSI Research, the research division of brokerage firm SSI Securities that was announced on Monday revealed that the COVID-19 pandemic interrupted the recovery cycle of the sugar industry which started at the end of 2019, pushing sugar prices to 10-year lows.
However, sugar prices recovered very quickly with the average price in 2020 9.6 per cent higher than in 2019. Meanwhile, the buying price of sugarcane was low, helping sugar companies earn significant gross profit margins.
According to the world’s largest sugar trader Alvean, a joint venture between Cargill Inc and Brazilian producer Copersucar SA, the global sugar market will face two years of shortages and sugar production is expected to fall short of demand by about 5 million metric tonnes.
Global sugar prices went up 11 per cent from 2020 and 56 per cent from the bottom level recorded in April 2020. SSI Research said there was still significant room for sugar prices to increase as global demand remained high.
In Viet Nam, there would be a shortage of sugar as the 2020-21 crop output is estimated at just 600,000 tonnes, a year-on-year drop of 34 per cent, according to the Viet Nam Sugarcane and Sugar Association.
Domestic demand is expected to increase by about 3-5 per cent per year, or 2.2 million tonnes in 2021, meaning domestic supply could meet just 30 per cent of demand.
The rest would be made up of sugar refined from imported raw sugar, smuggled sugar and imported sugar.
The Ministry of Industry and Trade decided to impose a temporary anti-dumping duty of 48.88 per cent on refined sugar and 33.88 per cent on unrefined sugar imported from Thailand, applicable for 120 days from February 17 with potential retroactivity of 90 days if the investigation funds significant injuries or threats to the domestic sugar industry.
SSI Research said with the temporary duty, the inventories of sugar imported from Thailand at low prices at the end of 2020 would be dumped into the market in the first quarter of this year, which would compete with domestic sugar for a short period of time.
The refined standard (RS) sugar price increased from VND13,500 per kilo from the end of 2020 to VND15,000-16,000 at the end of February while refined extra (RE) increased from VND14,000 to VND16,500.
The domestic sugar prices are expected to continue to increase as the current domestic price remains 30-40 per cent lower than other countries in the region. The duties imposed on imported sugar would also push up sugar price by about VND4,000-5,000 per kilogramme.
Accordingly, sugar is anticipated to reach VND17,000 per kilo in the domestic market.
The sugarcane prices also increased by 15-20 per cent compared to the previous season.
Still, domestic sugar prices would be affected by smuggled sugar, especially as anti-dumping duties would create a significant gap in prices between imported sugar and smuggled sugar.
The smuggling of sugar in the early months of 2021 reduced considerably as strong measures were taken to control border areas in the effort to prevent COVID-19 from spreading.
According to Vietcombank Securities’ report, the prospects for the domestic sugar industry are positive in the short term, as declines in output in neighbouring countries provide opportunities for Viet Nam’s sugar industry this crop season.
There are also opportunities for exports to the European Union with the EU-Viet Nam Free Trade Agreement.
However, Vietcombank Securities pointed out that the domestic sugar industry faced a number of challenges in the long term, including less competitive sugarcane output than Thailand, which was pushing up production costs.
The smuggling of sugar was also distorting the market. In addition, Thailand and China could recover sugar production from the 2021-22 crop seasons, which would create pressure on sugar prices.
It was important to improve the competitiveness of the domestic sugar industry through upgrading technologies, Vietcombank Securities said, adding that links between farmers and sugar plants to ensure stable production would also be critical.
