Thai sugar crop to regain market share, impact Asia trade flows

The Thai sugar market is eyeing a return to strength in 2022 after two consecutive years of drought, but will likely face logistical challenges in securing freight to export its surplus supply to buyers in the region as well as competition from cargoes from India and Brazil.

Thailand’s crop prospects for the marketing year 2021-22 (October-September) are expected to improve after increased rainfall in September, and expectations for production for the year range from 9.5 million mt to 11 million mt.

“Weather conditions are much better this year. During the cane growing period, we were seeing rainfall about 15% higher than before [last year] in the key cane regions” an analyst said.

S&P Global Platts Analytics estimates Thailand cane production for MR 2021-22 at 95 million mt and sugar production at 10.5 million mt. Thailand’s MR 2021-22 sugar exports are forecast to rise by 3.8 million mt to 7.5 million mt.

The increase in exportable supply from Thailand in MR 2021-22 as a result of the higher production is expected to continue pressuring Thai HiPol cash premiums, and has been reflected in recent Quota B tender results seen by S&P Global Platts. Average premiums for March-May shipment for 2021-22 crop is H+120 points compared with H+203 points for the 2020-21 crop.

Similarly, average premiums for May-July shipment and July-September shipment are K+137 points and N+152 points respectively for the 2021-22 crop, significantly lower than for the 2020-21 crop, which were K+241 points and N+261 points, respectively.

Freight issues

“Refined sugar is shipped in containers which are at the mercy of liners whose plans are contingent on port congestion and logistics concerns,” a Hong Kong-based refined sugar trader said. “Cash premiums would not move much with futures trading so high and therefore freight would have the main impact on CFR prices to destinations,” the trader added.

A refined sugar buyer said: “With container freight prices in Asia about three to four times higher now, we are reluctant to accept high cash premiums and there is also no reason to secure sugar if it is not urgent, as there is no sugar deficit.”

Raw sugar traders said there has been a reduction in bulk freight prices that has supported the pricing of sugar to major importing countries like Indonesia. Freight rates for dry bulk have corrected about 20% in recent weeks, with a Handysize cargo from Thailand to Indonesia at $27.50/mt Dec. 14 after peaking at $35/mt Oct. 14.

Indonesia demand

Indonesia, which typically imports more than 2 million mt/year of raw sugar from Thailand, imported only 819,031 mt over January-October, a year-on-year drop of around 61% according to Thai Sugar Milling Corporation Limited data. A contributing factor to the decrease was a fall of sugar consumption in Indonesia due to pandemic movement restrictions. Indian and Brazilian raw sugar cargoes that found takers in Indonesia also played a big role.

However, market sources expect Thailand sugar to regain its export competitiveness in 2022.

“Thailand is much closer to Indonesia, so there are freight advantages that will help in the export of Thai sugar,” a raw sugar trader said. The freight differential between Brazil and Thailand to Indonesia was around $30/mt, based on Platts data.

Thailand also lowered the minimum ICUMSA level of its sugar from a minimum of 1,000 to 600 in April. “This will allow Thai sugar to compete with Indian and Brazilian sugar as the quality is on par and I think 50% of Indonesia demand would be met from Thailand in 2022,” a Thai miller source said.

The Indonesian government in early December announced its recommendations for import permits for 2022. According to market sources, refineries will receive an import quota of 3.48 million mt for Jan.1-Dec.31 2022 shipment basis, and 750,000 mt for sugar mills to be shipped over Jan. 1-June 3 2022.

Vietnam antidumping policy

Vietnam’s government on June 16 imposed a 47.64% duty on imported cane sugar from Thailand. Trade sources familiar with the matter said the Vietnamese government could extend this to sugar imported from other ASEAN countries that qualify for a 5% duty under the ASEAN Trade in Goods Agreement or ATIGA, such as Indonesia, Malaysia, Cambodia, Laos and Myanmar, in an effort to curb imports from these countries, alleviate pressure on Vietnamese domestic sugar prices, and boost domestic production.

“If the duty is imposed on ASEAN-origin sugar, we will consider Thailand’s sugar as the import margin, which will be similar to other ASEAN countries,” a Vietnam-based trader said.

Market sources expect the duty to be imposed on other ASEAN sugar cargoes to be close to the 47.64% duty imposed on Thailand, giving Thai sugar back its edge in the Vietnam market in 2022.

“Vietnam still needs to import sugar therefore the development of the policy, and it will be a crucial factor for 2022 as it can support the cash premiums of Thai sugar,” a Singapore-based trader said.

S&P Global Platts

Tags: Brazil, Vietnam, sugar, India, Thailand