Sugar Prices in China Fall After Government Auction

Sugar Prices in China Fall After Government Auction (Update2)

July 19 (Bloomberg) -- Sugar prices in China, the world's second-largest
consumer of the sweetener, fell for a third day to an all-time low after
a state auction attracted less interest from local buyers, raising
concerns of an oversupply.

The government failed to sell 92,000 metric tons of refined sugar at an
auction yesterday. A second attempt today fetched prices that average
4.1 percent less than the previous, sale organizer China Merchandise
Reserve Management Center said in a statement on its Web site.

``This is the first time such an auction failed'' on its first attempt,
said Huang Yongjin, sugar analyst at Shenzhen- based Top Win Futures Co.
China aims to sell an extra 552,000 tons by Sept. 12, he said. ``Buyers
all expect sugar prices to be depressed further by more auctions
ahead,'' Huang said.

China, trying to cool rising consumer prices, wants to lower sugar
prices that almost doubled in the past year. It auctioned 386,000 tons
from government inventories in the first six months and has said it will
import supplies from Cuba.

White, or refined, sugar futures for delivery in March ended trading
down 16 yuan at 4,001 yuan ($500) a ton on the Zhengzhou Commodity
Exchange. Earlier the futures touched a record low of 3,975 yuan. They
have declined 16 percent since they began trading on Jan. 6.

Prices at the auction today averaged 4,378 yuan a ton, compared with an
average of 4,567 yuan a ton at the previous auction last month. The
Chinese government has held eight auctions of sugar from state reserves
this year.

Inflation

Consumer prices in China rose 1.5 percent in June, the fastest pace
since January, a government report yesterday showed. China's central
bank may raise its benchmark interest rate by the end of September to
curb economic growth.

Only India consumes more sugar than China.

Global sugar production is poised to rise 0.2 percent in the year
through September, erasing an anticipated shortfall, according to F.O.
Licht. Consumption growth may be limited to 1.1 percent, partly because
of increased use of sugar substitutes, especially in Mexico and China,
the Ratzeburg, Germany-based company said last week.

To contact the reporters on this story:
Feiwen Rong in Singapore at Frong2@bloomberg.net

Last Updated: July 19, 2006 04:18 EDT

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