The UK's only sugarcane refiner has welcomed the findings of a report published by the UK government this week suggesting the raw sugar import-dependent sector is set to lose out the most when quotas on domestic beet production are abolished in 2017.
According to the report published Thursday by the UK's Department for Environmental Food & Rural Affairs (Defra), the cane refining sector is faced with persistent negative margins unless tariffs placed on raw sugar imports are lifted, allowing it to compete in a market where beet production is expected to rise and prices will fall.
Tate & Lyle Sugars, the EU sugar refining arm of American Sugar Holdings, said the report provided "robust empirical confirmation of the point EU cane refiners have been making that further liberalization of EU raw cane sugar import duties is needed to put our industry on a level playing field with the de-regulated beet industry from 2017."
"The report clearly states that it is the policy distortion that hinders cane refiners' competitiveness, not refiners' own actions," the company said in an emailed statement.
ASR operates the UK's last cane refinery at Silvertown on the outskirts of London. It said "demonstrable progress" was needed by policymakers to end cane sugar import duties to match the already agreed end of quotas.
Under the existing EU sugar system, raw sugar imports from some of the world's biggest producers are classified "CXL" and are levied with a tariff of EUR98/mt. The report said unless this is removed, cane sugar refiners will be left facing negative margins post-2017.
It said negative margins could reach as much as Eur165/mt between 2017 and 2024 after quota abolition in different scenarios where sugar is imported from ACP/LDC members and CXL countries if the import tariff continues to exist. The only scenario in which cane refineries will face positive refining margins will be one in which tariffs are also lifted in addition to the beet quota abolition.
The report also forecast a significant fall in the price of white sugar in the EU, but not enough to completely converge with world prices. The differential in EU sugar prices and white sugar world prices will be significantly lower than what it is now but will remain a differential nonetheless.
"Even after quotas are removed, EU white sugar prices are still above the world price. While much smaller than the price gap in earlier years of the projection period, this is still a price differential albeit more modest," the report said.
This differential will be supported by import restrictions to support the domestic market, and will be around 15% above the average world price, whereas initially the gap stood at 70%. The data shows that most of this fall in price will be fed back to the beet growers, but cane refiners will also suffer as a result of lower margins. According to the report, the key impacts of abolition of sugar beet quotas in 2017 are:
- Beet production to increase 5%-6% by 2020;
- EU white sugar prices to fall by up to 15%-16%
- Growers to receive 5% less for beets;
- EU imports raw sugar for cane refining to fall 43% post-2017; immediate impact post-quota abolition.
CONVERGING PRICES
The convergence in EU and world prices is already visible to some brokers in the market as evident from current domestic delivered rates. Prices this campaign are 50% lower than the 2012-2013 campaign when the commission had no choice but to implement exceptional measures to control the price. Latest Platts assessments show Western Europe Delivered at EUR500/mt and Mediterranean delivered at EUR520/mt. However, according to some market participants European prices are on the way up once again due to fears over final production figures.
"Recently, we have seen an uptick in the domestic price. This is a direct result of increased rains and poor bet quality," a France-based source said.
The report said: "Post abolition EU sugar production is forecast to rise by a modest 5%." This is in line with market consensus as producers will look to increase market share through higher production. "Duty-free TRQs will add an additional 0.5 million - 1 million to EU supply, bringing the price even closer to the world price," but will remain higher than the world price, the report said.
