Familiar with sugar futures friends will note that there is a "sugar cycle" in China's sugar price, the cycle is basically a big cycle of five years, according to the time calculation has been in the key period of the transformation of bears and cattle, so this cycle is really coming? Today, we will analyze it from another Angle, which may be the most critical factor.

Recently we will find a strange phenomenon, raw sugar 10 contract from this year's highest 13.96 cents all the way down to 10.68 cents, while zheng sugar 01 contract from this year's lowest 4,700 yuan all the way up to 5,500-5,600 yuan range. What has caused such an unusual divergence in prices?

It starts with the supply structure of our country. China is a country that has long been short of sugar production. In recent years, the difference between sugar production and consumption in China is about 5 million tons. Since 10/11, the amount of sugar imported by China has not been lower than 2 million tons, but basically maintained at about 3 million tons. However, due to the high production cost of sugar in China, the inverted price of internal and external sugar makes overseas sugar have a natural price advantage. However, as China has an import quota system, the tariff within the quota is only 15%, but only 1.945 million tons of quota. Of course, even if the current quota due to up to 85% of the tariff situation, the recent still appeared 700-900 yuan disk import profit. But, our country imports quota to have license system again outside, this year's license quantity is 1.35 million tons, because this year's total import is capped, will not cause destructive impact to domestic candy market.

Under the protection of import policy, the price difference between inside and outside will often have a period of explosive growth, but also a sharp contraction, which is not only caused by import variables. The cost advantage abroad has spawned a "black sugar smuggling chain". Under the impact of smuggled sugar, the protective effect of import policy was greatly weakened, and domestic sugar suffered a serious impact.

Smuggling is mainly completed through transit from neighboring countries and regions. There are many sources of sugar, but the main source is Thailand, because Thailand is the largest exporter of sugar in Asia, 70% to 80% of the sugar is exported every year, especially processed refined sugar by the surrounding countries and regions. The main transit points are Burma and Taiwan.

We can see the change in imports from these two places through a set of export data from Thailand. According to Thai customs data, the total amount of sugar exported from Thailand to myanmar in 2014 was 169,000 tons, but it increased to 464,000 tons in 2015, and continued to grow to 907,000 tons in 2018, among which the refined sugar reached an amazing 798,000 tons. In 2016, the total amount of sugar exported from Thailand to China and Taiwan was 216,000 tons, surging to 855,000 tons in 2017 and 717,000 tons in 2018. Among them, the amount of refined sugar was 806,000 tons in 2017 and 505,000 tons in 2018. We know that sugar consumption is relatively stable, and it is impossible to increase 3-4 times in a year.

So what about this year? In the first seven months of this year, Thailand exported only 92,000 tons of sugar to myanmar, compared with 444,000 tons in the same period last year. Thailand exported only 290,000 tons of sugar to China's Taiwan, compared with 397,000 tons in the same period last year and 450,000 tons in 2017. The main reason for the drop in sugar exports from Thailand to the surrounding areas is China's continuous crackdown on smuggling. In the past two years, China has made great efforts to combat smuggling. In the early years, the most rampant smuggling was on the border of yunnan and myanmar. With the intensified efforts in this area, maritime smuggling gradually became the mainstream. Subsequently, China once again strengthened the coastal areas to combat smuggling efforts. In particular, the "opinions on handling criminal cases of evil forces" issued in April this year has defeated many smuggling gangs while combating evil forces.

So the last question we have is will the price differential persist? On this issue, the focus of our thinking is still not abroad, but at home. Because the factor that causes the price to increase comes from the problem of domestic supply, and the crux of this problem is that smuggling is stopped!

In the first quarter of this year, China's imported sugar was only 200,000 tons, down 53.4 percent year-on-year. In the second quarter, China's imported sugar was 860,000 tons, down 9.47 percent year-on-year. Therefore, China's imports in the first half of the year is a significant decline. In July this year, China imported 440,000 tons of sugar, up 76% year on year. It is obvious that the import profit increased significantly, especially when the import profit outside the quota was extremely rich. At present, the import profit outside the quota was quite considerable, and the import profit in August and September was far more than that in July. Therefore, the import volume in the second half of this year will be very large. However, due to the restriction of quota system and license system, the import limit is still limited, and the annual limit is 3.2 million tons. If the profit is large, the temptation to smuggle will be greatly increased. If our crackdown continues, it will be difficult to make up for it. Therefore, the support of domestic sugar price is conceivable.

We believe that the price of sugar will continue to rise in the future, and the correction will always be the main theme, which is the result of a virtuous circle under the anti-smuggling forces. Although the problem of sugar production costs in China cannot be solved in a short term, the domestic impact of the slow digestion of global inventories will be stripped away no matter how bad the external environment is. With the adjustment of global supply pattern, global supply in 19/20 changed from surplus to shortage, but still needed to reduce the remaining inventory. And in the case of little change in domestic output, after fighting smuggling forces, domestic sugar prices may once again lead the international ahead of the arrival of cattle and bears conversion.

The extra-quota tariff may be restored to 50% after may next year, which will affect the price after may next year with a high probability, but will not affect the overall cyclical rhythm. Next year's imports are also capped, though it is unclear how many licences will be issued next year. Due to the tariff problem, the price of the contract in May next year will be nearly 100 yuan lower than that in January. But this was not appropriate because the tariff was introduced on May 22, when the may contract closed. Considering the difference between before and after the tariff, the import volume in May or even the previous months is bound not to be large, and the concentrated release time of import is after May 22. Therefore, in fact, the 2005 contract is undervalued, and its investment value is better than that of the 2001 contract, so we can consider the arrangement of bargain hunting.

Transfer from: nanhua research