It’s blistering hot across China and people will be trying to beat the heat by indulging in iced teas and cold desserts, a trend that may spur one of the world’s biggest sugar importers to step up buying.
A heat wave is baking the country’s northern regions, with temperatures in Beijing and Tianjin smashing records. Hot weather tends to drive higher consumption of cold drinks and desserts, bolstering sugar demand in China, which usually peaks in summer.
That’s likely to tighten the domestic sugar market further, after output in top producing region Guangxi was hit by bad weather in 2022-23. Even the new crop for the season starting October is at risk as El Niño can exacerbate heat waves in southern China, where most of the sugar cane crops are grown.
Read More: Sugar Is Likely the Next Commodity to Worry China as Prices Jump
Any shortfall in the domestic market could push China to import more sugar, supporting international prices. However, China’s purchases so far this year have been pretty weak, falling about 35% in the first five months from last year due to poor margins.
Buyers currently stand to lose 200 to 500 yuan ($28 to $69) for every ton of imported sugar they process outside of a quota system, according to data from Mysteel, a China-based commodities consultancy. This is still an improvement from losses of over 1,000 yuan just days ago.
China issues an import quota each year of 1.945 million tons, which attracts a 15% import duty. Sugar can be imported out of quota at a 50% duty, but the government controls this by issuing special permits. China has imported a total of 1.06 million tons of sugar in the first five months, customs data shows.
It’s a matter of time before out-of-quota imports become profitable, CITIC Futures said in its mid-year sugar report this week. Domestic inventories are running down and end-use consumption is set to recover, the brokerage said.
Latest data from the China Sugar Association show sugar sales jumped 17.5% in May from a year ago to 1.1 million tons. Meanwhile, industrial stockpiles of sugar fell more than 30% as of the end of May.
With imports remaining low so far and inventories falling, the recent price declines will support demand, broker Holly Futures said in a note Thursday.