BMI View: The Asia Pacific region is in a structural and widening deficit regarding sugar supply. With subdued production growth and steadily rising consumption, various key Asian countries are increasingly turning to imports to fill their ballooning sugar deficit. Deepening imbalances, coupled with historically high prices, are driving an investment spree in Thailand and Australia, two countries with the potential to tap the region's growing needs.
The Asia Pacific region is in a structural and widening deficit for sugar. With subdued production growth and steadily rising consumption, various key Asian countries are increasingly turning to imports to fill their ballooning sugar deficit. The region's self-sufficiency ratio hovered around 96% over the past five years and is likely to decrease in the medium to long term. Consumption is growing fast, driven by population rise, income growth, urbanisation and diet evolutions.
|Select Countries - GDP Per Capita (LHS) & Sugar Confectionary Sales Per Capita (US$)|
Net importers of sugar are deepening the region's deficit, as many countries record structural production deficit. While developed Asian countries, such as Japan and South Korea, will maintain stable production balances and imports, we believe various countries have the potential to become major importers of sugar in the coming years, as production cannot keep up with soaring demand. From a demand perspective, China, Indonesia, Bangladesh and Malaysia will be the most significant features of the developing trends.
|Asia - Sugar Consumption ('000 tonnes)|
China's demand growth should be robust in the coming years (we are pencilling in a 21.7% growth between 2011/12 and 2016/17), as the country's per capita consumption is low as compared with Asian and world standards (respectively at 10.6kg, 16.5kg and 25.0kg per capita in 2011), and has the potential to soar in the coming years. The country, which is already the world's third largest consumer after India and the EU, is bound to intensify its consumption of sugar, mainly for industrial use in food manufacturing rather than direct human consumption. The UNFAO estimates China's imports could reach 4.8mn tonnes in 2021/22, doubling from the current levels. Concerning Indonesia, we remain doubtful about the government's goal to wean itself off sugar imports by 2014 and believe the country will see its production deficit grow to 3.7mn tonnes in 2016/17. In Bangladesh, sugar production has been in decline for several years and we believe the downward trend will continue apace, as farmers increasingly plant more profitable cash crops such as cotton. Out to 2016/17, the domestic deficit should reach 2.0mn tonnes. Given the ongoing and coming investments in the sugar refining sector, these three countries should mainly import raw sugar.
|Growing Weight On International Market|
|Select Countries - Sugar Imports, As % Of Total (LHS) & In '000 Tonnes (RHS)|
India's sugar industry will remain subject to its longstanding production cycles, where two to three years of surpluses and large exports are typically followed by two to three years of deficit and imports. Bumper crops are often retained for the domestic market due to its size and price attractiveness. Although India will maintain a fairly stable production balance (of 11,000 tonnes on average between 2011/12 and 2016/17) with cyclical switches towards small surpluses and deficits, we believe it will remain an unstable international supplier.
|Select Countries - Sugar Production Balance (Mn tonnes)|
We see major opportunities for Thailand and Australia to become the main suppliers of the region. Among Asia Pacific, only these two countries produce consistent sugar surpluses, and we expect production to be strong in the coming years. The Australian sugar industry is poised for a recovery, after a decade of production decline due to low prices and extreme weather events. The ongoing consolidation and influx of international investment, along with high prices will support production. We see output growing 31.5% between 2011/12 and 2016/17, leading to a 3.6mn tonnes surplus. Meanwhile, we believe Thai sugar industry's growth will endure in the coming years, as farmers increase acreage pushed by higher profitability, strong government support to the sector and good market prices.
Long-term attractive prospects of strong consumption growth and trade in the region, coupled with high world prices in recent years, are generating a new investment dynamism in the sector. The Australian sugar sector is undergoing a steep restructuration and consolidation, with international investors, such as Wilmar, Mitr Phol and COFCO, acquiring local refiners and planning to boost production. In Thailand, local players have plans to build 14 new cane crushing mills by 2017, adding to the current 47 mills.
|Sugar - Thailand (LHS) & Australia Exports By Destination (As % Of Total)|
Increased production and confidence in Thailand and Australia's sugar industries sector will help these countries step up production and strengthen their role on the international markets, more specifically as key providers to Asia. These two countries also boast a natural trade advantage and lower freight costs over the main competitor Brazil. Thailand is already the primary exporter supplying Asia, with more than 65% of its exports shipped to the region, mainly to Indonesia, Japan and South Korea.