On January 19, 2017, CCM and Tranalysis offered a free webinar for the market trend of sugar and sweeteners in China, 2016. CCM now gives you the chance to read the script once again.
CCM has also uploaded the recorded video of the webinar on YouTube.
Subscribers of our YouTube channel China Sugar and Sweeteners webinar will be informed per email, whenever a new video about China's sugar and sweetener market has been uploaded.
Many
factors are affecting the sugar and sweetener market in China recently.
Environmental health policies are limiting the production of sweeteners in
China. Also, a Pollutant Discharge Licensing System is being implemented, which
will without any doubt influence the sweeteners industry in China ones more.
The financial performance of Chinese sugar manufacturers varied greatly in Q3,
resulting of increasing production costs, rising sugar price, and decreasing
sales volume. In 2015 and 16 the planting area of sugarcane in China decreased,
leading to a shortage of sugar, which is the main reason for the current high
prices.
The agenda
First,
you will see insights in the overall market situation of sugar and sweeteners
in China. Furthermore, some information about the current pollution
measurements and production reductions are explained. Then you see information
about some enterprises performance in Q3 2016. Finally, the export trend of two
important sweeteners 2016 will be revealed.
Market trends
At the beginning,
have a look at the Ex-works price of some sweeteners in China, November 2016.
It shows, that the overall development for most of the products didn’t change
very much compared to October. Only Mannitol experienced an outstanding
increase of 16.52%.
During
the last year, the planting area of sugarcane did decrease. This causes a
higher purchase cost for the sugar producers, due to shorter supply.
Additionally some heavy rain during that time also reduced the quality of
sugarcane, increasing the cost of sugar manufacturing ones more.
The
increasing costs even exceeded the increasing prices of sugar, which actually
led to losses for many manufacturers, according to CCM’s analysis. Downstream
users searched for substitutes for the more expensive sugar in China, also led
to a declined sales volume.
CCM
furthermore predicts, that the sugar price will continue rising in China. The
reasons are a depreciating RMB, limited growth of the sugar output in 2016 and
17 as well as expected decreased imports. However, the price rise will be
limited, due to the launch of the national sugar reserves, the new production
of sugar in the coming period and more substitutes for sugar.
It
is expected, that 56.65 million tonnes of sugarcane and 5.7-5.9 million tonnes
of white sugar will be produced in China in the season 2016/17.
The
new import tariff of sugar is deciding, how the sugar price will develop. For
an increased tariff with expected growth, the sugar price will stay high in
China, due to tight sugar supply. But new supply and substitutes will keep the
prices limited. For an increased tariff but slow growth, fluctuations in price
are possible with higher price than the world market. For the unlikely case the
tariffs are not raised, sugar price will fall.
The
inventory in China is historically low with an amount of 203,700 tonnes in October
2016.
The
purchase price of sugar in three different regions in China show the
development of increasing prices in China.
Globally
analysed, the sugar shortage is going to reach 6.2 million tonnes 2016/17, what
would represent a record high. This is mainly due to Brazil’s peak extraction
period at the moment.
As
a result, after loses in the last three years, sugar makers in China are going
to make profits in this season. CCM believes, that this trend will go on for
the season 2016/2017.
Market dynamics of
sucralose
Sucralose
experienced an increase of over 100% in 2016, mostly caused by short supply
because of environmental protection and the resulting price rise. It is
expected, that manufacturers grow their production to balance the short supply,
which will shrink prices again.
The
case of JK Sucralose’s production suspension demonstrates the short supply
situation of sucralose in China 2016. It even led to a lack in inventory for
many companies.
The
company had to reduce production because of the order from the Environmental
Protection Bureau of Jiangsu Province, stating, that the wastewater treatment
of the facility didn’t meet standards. JK Sucralose is the largest sucralose
manufacturer in China and the second biggest in the world, with capacity of
2,000 t/a, so the suspension of his production had a huge impact on the supply
situation in China. The reduction affected about 40% of production, which makes
the producers still larger than competitor’s production.
According
to CCM, the ex-works price of sucralose was USD86,912/t in November 2016.
That’s just a 1.28% rise MoM, but more than 100% compared to January 2016.
The
fastest growth took place in June with 56.25% increase alone.
Since
sucralose is made of sugar, the increasing sugar price is affecting the
sucralose price immensely. According to sucralose manufacturers, a further
price rise of sucralose is very likely, if the sugar price keeps rising as
well.
Sucralose
manufacturers are going to expend their production of their product in the
future, to balance out the short supply and make more profits out of this more
profitable product.
After
looking at some market trends, let’s have a look at the environmental
protection measurements, that are affecting the price of sweeteners decisively
in China.
Stricter environmental
policies
Since Jan. 2015 when the new Environmental
Protection Law of the People's Republic of China was implemented officially, the
government had increased focus on environmental pollution.
Feb. 2015: the Water Pollution Prevention and Control Action Plan was issued
June 2016: the Ministry
of Environmental Protection of the People's Republic of China solicited public
opinions on the Water Pollution Prevention and
Control Law of the People's Republic of China (Draft for Revision)
Nov. 2016: the State
Council issued the Proposal to Control Pollutant
Discharge Licensing
Jan. 2018: the Environmental Protection Tax Law will come to effect
All this forced sweetener manufacturers to
limit or suspend production. In July 2016, JK Sucralose Inc. was ordered to
suspend production for its substandard discharge of wastewater. Though it
resumed production at the end of September, the output was small. Notably, many
enterprises were not operating at full capacity, according to CCM's research.
Environmental
pressure takes place in many sweetener industries in China. CCM has surveyed
some manufacturers to get insights into the effects on their industries.
As
mentioned before, sucralose suffered a production reduction mainly based on the
order to JK Sucralose. But also other producers like Anhui Jinhe are affected
by stricter laws and have to make big investments in waste discharge solutions.
The treatment of wastewater from the production of sucralose needs large
quantity of funding and specific equipment in general.
Also,
besides the big investments most of the producers cannot use their full
production capacity, due to environmental issues. Currently, Shandong Kanbo
Biochemical is the biggest supplier of sucralose with a capacity of 4,000t/a.
Natural
Sweeteners like Steviosides, Mogrosides, and Glycyrrhizin are also affected by
production restrictions.
The
high industry sweeteners in China, like Acesulfame-K and aspartame are
suffering low profits currently. Also affected by the environmental policy,
especially small manufactures have even cut their whole production, not able to
afford the equipment for the required wastewater treatment.
The environmental pollution effort also includes the
enlargement of so-called pollutant discharge licenses, which will likely have a
negative effect on Chinese sweetener producers. The measurements come into
action because the quality of air and water in many regions have not achieved
the standard value for a long time.
The main idea of controlling the pollutant discharge are
discharged licenses, that requires mainly manufacturers with pollutant emission
to be licensed until 2020. The goal of the licenses is to reduce and cut
pollution, which will help to achieve the standard value of quality for many
regions again.
The new system is supposed to clear out past vagueness
and will be supervised more strictly. CCM has listed the key measures from the
proposal of November 21, 2016.
First of all, the system changes from an
administrative area pollutant discharge system to a certain organisation
affecting one. The applications for licensing should be done before the actual
project construction, which serves as a reference for the planned regular
environmental checks. It also allows authorities to monitor pollution in
advance.
The management of the licensing management requires a
catalogue, created by the environmental protection departments, about the
pollutant discharge. This will be accordingly changed to the different type of
industries and their impact on the environment. The organisations can then
apply for the license by stating their pollution variety, amounts, and
concentration.
The governmental departments are requested to do
inspections more frequently, according to the pollution emission of companies,
and get the rights to punish blunder with production limitation, suspension,
and shutdown. On the other side, the licensing system encourages organisations
to give themselves stricter pollution limits, which can be regarded by
preferential electricity prices and governmental preference.
This newly implemented license will be the only
permission for organisations to emit any pollution. Every other method will be
illegal. The licenses will be granted for three years in the first place and
five more years after every renewal.
According to CCM, the sweetener industry may be
impacted, too, looking at high pollution manufacturers especially in the
high-intensity sweetener business. These include for example the production of
sucralose.
Looking at the small enterprises, who cannot afford
the treatment equipment necessary for the license and bigger manufacturers with
their production likely being reduced, the whole output of the sweetener
industry in China may decrease the next years notably.
Financial performance
The
financial performance of China’s sugar manufacturers had large varieties in Q3,
2016. It was mainly resulting of increasing production costs, rising sugar
prices, and a decreasing sales volume.
The
big winner was COFCO Tunhe with a Sales increase of 49.54% YoY and a net profit
increase of remarkably 142.86% YoY.
The
reasons for the big success, according to the company, was the rebounded sugar
price.
Other
companies like Nanning Sugar and Guangxi Guitang on the other hand did write
down losses in 463.55% and 108.51% YoY respectively. They are explained by high
costs and a decreased gross profit margin.
Supply and demand for sugar
According
to CCM the number of sugar plants in operation as well as the daily extraction
capacity are more in this season compared to the season last year. Therefore,
the sugar output is likely to grow again, due to increasing sugarcane supply
and an enlarged planting area. The Ministry of Agriculture in China stated a
rose of sugar output of 1.20 million tonnes up to 9.90 million tonnes in
December already.
Anyway,
the worldwide sugar shortage of estimated 2.63 million tonnes 2016/17 also has
its impact on China, leading to decreased imports to China of 3.5 million
tonnes. Looking at the consumption of 15 million tonnes and exports of 70,000
tonnes, China’s sugar shortage may reach about 1.67 million tonnes this season.
Trade analysis
Sucralose
had a total export quantity of 2,206,822 kg in the year 2016 till October. The
average unit price has been 44.66 USD per kg, which resulted in the total value
of exports with over 98 million USD. The trend of total value furthermore went
up during the year, with a small drop in August.
The
top exporting enterprises of sucralose have been Ji an New Trend Technology, JK
Sucralose, and Shandong Kanbo Biochemical Technology. While Ji an New Trend was
the first place with some space to the second one regarding export value, JK
Sucralose and Shandong Kanbo had a very even export value.
Together
the three leading enterprises were responsible for more than half of the whole
export in China from Jan to Oct 2016.
The
main destination country of sucralose exports was the USA with a total value of
almost 29 million USD. Germany and the UK are on the next places, with
significantly lower imports
Looking
at the share of the countries, it is obvious that the USA and Germany together
important more than half of sucralose from China. The share of the other
countries is much more even though.
At
second, we take a look at Erythritol. Erythritol export value had a slight fluctuation
throughout the year, with a large drop in October 2016. The total quantity was
8,818,152 kg with an average unit price of 2.49 USD/kg. The total value have
been 21,920,873 USD
The
three main exporting enterprises in China for Erythritol have been Sanyuan
Biology, Baolingbao Biology, and Zhucheng Dongxiao. However, Sanyuan and
Baolingbao have exported a much higher value than the third place Zhucheng.
The
share of the main two enterprises almost hitting the 75% of total exports,
while the other companies did not show any greater appearance.
The
biggest importing countries of Erythritol from China in 2016 till October have
been countries, we already seen at the top of the other sweeteners, namely the
USA, Germany and Japan. The import value of this sweetener is more balanced
between several companies, while the USA is still top importer with quite a bit
range to Germany.
Again,
the three main importers are responsible for about two-third of the total
export value.
For
a deeper trade analysis of any sweetener product in China, feel free to contact
Tranalysis for a consult and customized report.