Economic Observer reporter Wang Yajie

In mid to late October, a local state-owned sugar factory was relocating storage space.

The person in charge of the sugar production workshop of the factory told the Economic Observer that as of the end of September, more than half of the aged sugar produced in the previous sugar production cycle has been sold, but the carried over inventory is still significantly higher than the same period in previous years. Not long after, the factory will shut down for rest and start a new round of production, and the new sugar will be gradually put into storage.

At this time in previous years, traders and food companies would come to the factory in advance to lock up their goods and distribute a portion of their inventory. Although we are still inquiring about prices this year, placing orders has been slow.

The person in charge of the sugar production workshop mentioned above said that downstream customers tend to pick up goods only when there are orders, and food factories also tend to pick them up as needed.

Inventory pressure is spreading upwards along the industrial chain.

Sugar trader Li Qiushi told Economic Observer reporters that since June, his company has basically given up quarterly bulk locking and instead evaluated and ordered goods on a monthly basis according to demand. A purchasing manager of a canned food company also said that the stocking cycle for white sugar in the company has been shortened from 45 to 60 days in previous years to 7 to 10 days.

The external market has given another signal.

Indian state-owned oil enterprises issued a joint bidding announcement on October 16, saying that since November 1, they will no longer purchase ethanol produced from Sugar cane juice, sugar, syrup and B-grade heavy molasses.

This move from a globally important sugar exporting country has been interpreted by the market as a signal of tight domestic sugar supply in India and the government's eagerness to preserve sugar. Coupled with the expectation of drought and reduced production in major production areas and tightened exports, international expectations for far month sugar prices have risen, ushering in a new situation.

The sugar market is stuck at the entrance of the warehouse

According to the arrangement of the sugar factory mentioned above, in mid to late November, after a new round of operation, new sugar will be gradually stored in the warehouse. The person in charge of the sugar production workshop mentioned above said that the factory needs to continue digesting old sugar while also freeing up storage for new sugar, and the storage capacity is already very tight.

This is not a situation encountered by a sugar factory.

According to data from the China Sugar Association, as of the end of July, the national sugar industry inventory was about 3.72 million tons, at a historical high, with 2.21 million tons in Guangxi and 910000 tons in Yunnan, both reaching 11 year highs.

Inventory is increasing, and cash flow is also under pressure.

The person in charge of the sugar production workshop mentioned above said that white sugar occupies a large amount of capital, and storage and financial costs are increasing every day. After the start of a new round of production, the sugar factory still needs to prepare working capital for sugarcane acquisition, production and operation.

But price reduction is not a button that can be easily pressed. The person in charge of the sugar production workshop stated that during some periods, the spot price of white sugar has been close to or even lower than the production cost. If there is a significant shortage of goods, the enterprise will face losses. At present, the factory can only adjust the sales pace, temporarily reduce profits and increase volume, and try to find a balance between shipments and losses.

Li Qiushi told Economic Observer reporters that as early as June 2026, his company would abandon quarterly bulk locking and instead evaluate and order goods on a monthly basis according to demand, with a standing inventory of several hundred tons. When the supply of goods is sufficient, the price will decline, and whoever receives the goods first will bear the price drop and capital cost first.

Li Qiu said frankly, "Sugar is still flowing, but the speed has slowed down and the location where it stays has changed." In the past, some of the sugar that was scattered in the warehouses of traders and downstream factories stayed more in sugar factories this year. The waiting at the warehouse entrance has become the most intuitive change during this sugar production cycle alternation.

Who will pick it up?

Li Qiushi also shortened the procurement list in the office.

The company he works for currently maintains a stock of only a few hundred tons of spot goods, mainly to deal with sporadic small customers. In previous years, it often suppressed thousands of tons of spot goods, but this year it is basically no longer used. The current supply of goods in the production area is sufficient, and the inventory of sugar factories is high. As long as downstream companies issue real orders, delivery can be guaranteed, and the necessity of stocking up in advance to ensure supply has significantly decreased.

But the more direct reason is the fear of losing. Li Qiu said frankly that one ton of white sugar requires a considerable amount of capital. After hoarding a large amount of spot goods, if the spot price continues to decline, the price loss will soon fall into the account. Storage fees and interest on funds are also increasing every day. If the downstream does not receive it, the goods may fall into the hands of the traders.

Downstream factories are also "lightening" their warehouses.

Liu Qing, a purchaser from a canned food company, told the Economic Observer that in previous years, when the sugar market was stable, the company generally maintained a production volume of 45 to 60 days of sugar, and the warehouse had a standing stock of about 600 to 800 tons of sugar.

In this cycle, domestic sugar prices continue to weaken and the risk of price decline persists. Coupled with stable upstream supply, the stocking strategy of such food processing enterprises has been adjusted accordingly, compressing the stocking cycle to 7 to 10 days and controlling daily turnover inventory at 150 to 300 tons.

Liu Qing said that the formula for canned food is relatively fixed, and white sugar is still a necessary raw material. The total annual consumption does not change much, but rather the purchasing action. Now, the company calculates its production plan on a weekly basis and places orders with sugar traders based on the production schedule. Even if there is a small peak in production during holidays, the company's sugar inventory will only temporarily increase to around 400 tons and will not return to the long-term inventory pressure of the past.

Liu Qing further stated that the food processing industry is inherently characterized by thin profits and tight funding. In previous years, the trend of sugar prices remained stable, but the risk of supply disruption was higher. Companies are willing to allocate a portion of their funds to exchange for sugar safety stocks to hedge against supply disruptions and price increases. This year, domestic sugar prices have continued to be under pressure, with clear expectations of a decline. Coupled with stable supply from production areas, the risk return ratio of this funding has reversed. Enterprises have proactively cut off their capital occupation in the sugar sector, prioritizing the use of working capital for packaging, labor, and other essential raw materials with more stable prices.

Sugar trader Zhou Qiqiang told Economic Observer reporters that his company is moderately acquiring goods to build inventory. He has several large food and beverage customers who have signed lock up supply contracts from the fourth quarter to the first quarter of next year, so he needs to lock in some of the sources of goods in advance to ensure delivery.

Zhou Qiqiang is also very restrained in his position manipulation. His idea is to use long-term contract orders as a foundation, then make a small proportion of strategic stocking, while cooperating with futures tools to control price volatility risks. Compared to small and medium-sized traders, Zhou Qiqiang has a thicker capital buffer, which enables him to hold a portion of the spot market.

According to the "2025 Food Industry White Paper" by the China Food Industry Association, about 70% of domestic sugar flows to industrial sectors such as food processing, and the proportion of household bulk retail channels has dropped to around 12%. GEP Research further breaks down the internal sugar demand in the food industry in its 2025 report: beverage sugar accounts for 43% of the sugar consumption in the food industry, followed by baking at 21%, dairy at 18%, and candy and chocolate, which are the four main downstream sources of sugar in China.

Unlike India, which has diverted a large amount of sugarcane and sugar materials to ethanol, China does not use sugar and Sugar cane juice as mainstream materials for ethanol, and the volume of sugar used for ethanol conversion is low. The domestic fuel ethanol raw material is mainly corn, with a small amount of cassava used, which hardly squeezes the supply of commercial sugar.

According to the CASDE Sugar Supply and Demand Report released by the Market and Information Technology Department of the Ministry of Agriculture and Rural Affairs in August 2026, the domestic sugar production for the year 2025/26 is 12.95 million tons, with an estimated import of 5 million tons and a total annual consumption of 15.7 million tons. Domestic sugar accounts for about 72% of the total domestic supply, while imported sugar accounts for about 28%; Brazil is the largest source of sugar imports in China, accounting for about 80% of the total imports, followed by Thailand, El Salvador, Mauritius, and others.

External bullish, internal bearish

Domestic warehouses are still being relocated, and import traders are also reviewing orders.

According to the commodity spot data of Tonghuashun on October 12, 2026, the market prices of first grade white sugar in Nanning and Kunming on September 28, 2026 were about 5230 yuan/ton and 5070 yuan/ton, respectively, a decrease of about 550 yuan and 620 yuan per ton compared to the same period last year.

The main contract for sugar futures on Zhengzhou Commodity Exchange fell to 5050 yuan/ton in early August and returned to above 5400 yuan/ton at the end of September, a decrease of about 310 yuan/ton compared to the same period last year. On the other hand, the International Sugar Organization's (ISO) 2026 estimate shows that global sugar production in 2026/27 will be 180 million tons, a year-on-year decrease of 1.1%, resulting in a small supply gap of 262000 tons, which is the reason why the international market is bullish on sugar prices.

Zhou Qiqiang analyzed to reporters that the simultaneous occurrence of a small global gap and high domestic inventory is due to three layers of misalignment: firstly, the global gap is the long-term expectation of the 2026/27 new crushing season, while the inventory currently being held in China comes from the high production of the 2025/26 crushing season, which exceeded expectations and belongs to the stock that has already been realized in the previous week; Secondly, this gap is a global total concept, mainly located in net import regions such as South Asia and the Middle East, and does not directly correspond to China's procurement window.

Li Qiushi told the Economic Observer reporter that his company has not completely suspended its import business recently, and the long orders that have been finalized are still being executed according to plan, but the pace of new physical orders has slowed down. What he has been weighing repeatedly recently is the price signal that neither side is stable. On one hand, domestic spot prices are relatively weak. Chen sugar is still being processed, and new sugar is about to be launched. If a large number of import orders are signed now, and the domestic spot price does not rise after the goods arrive at the port, there may be a situation of loss upon arrival. On the other hand, there is a strengthening expectation for international prices in the distant months. If external prices continue to rise, companies may purchase white sugar in the future, which may further increase costs.

Li Qiu said frankly, "I am afraid that domestic sugar inventory will lower the price in recent months, and I am afraid of international price increases in future purchases." Therefore, he can only monitor the progress of domestic aged sugar inventory while tracking changes in the external market. He dare not rashly increase the actual import of white sugar, nor dare to completely close the door on future purchases.

There is a clear divergence between domestic spot prices and international sugar price expectations, and India's latest industrial policy is the trigger for the current increase in external market expectations.

According to relevant arrangements, since November 1, Indian state-owned oil enterprises will no longer purchase ethanol using Sugar cane juice, sugar, syrup, and B-grade heavy molasses as raw materials, while C-grade heavy molasses, corn and other raw materials can still be purchased. The market subsequently began to evaluate whether some sugarcane resources would flow more towards sugar production, and how the amount of sugar available for export in India would change in the future.

An import trader familiar with international sugar trade told Economic Observer reporters that this policy is not a complete ban on ethanol production, and the impact cannot be simply amplified. The local sugar consumption in India is large, and it has been affected by weather factors in the early stage. Even if some sugarcane is returned for sugar production, the surplus that can be exported still depends on the production situation of the new round of crushing season.

But the foreign market is already trading in anticipation. The above-mentioned import traders said that if India's export release is limited, overseas buyers who originally purchased Indian sugar will turn to tradable sugar sources such as Brazil and Thailand, pushing up the prices of these major producing countries. The main source of sugar imports from China is not India, and the impact is more transmitted through international pricing.

This also affects the way domestic traders make judgments. The above analysis of import traders shows that in the past, when looking at sugar imports, it was only necessary to compare external prices, exchange rates, tariffs, and domestic selling prices to determine whether the calculation window was open. Now, more companies need to consider the speed of digesting domestic white sugar inventory, the pace of new sugar listings, and the risks of long-term external trading together.

Zhou Qiqiang is also looking at the external market. He told the Economic Observer reporter that his company still retains a small proportion of strategic stocking, mainly because there are already downstream long-term contract orders that need to be guaranteed for delivery, and at the same time, international market supply expectations are tight. But he also said that the inventory of aged sugar in China is not small, and new sugar production will start again. There is no basis for a significant unilateral increase in spot prices, so the company will not bet on full positions.

Downstream factories did not immediately increase inventory following the external market.

The purchasing manager of the canned food enterprise mentioned above stated that the rise in international sugar prices does not mean that domestic spot prices will immediately rise synchronously, and there is a transmission time difference in between. If only the forward price of white sugar in the external market rises and there is no substantial change in domestic spot prices, companies will still maintain short-term essential procurement.

He added that his team will only moderately increase safety stock or lock in some sources of goods in advance through long-term contract orders when domestic spot prices continue to rise and the opening price of new sugar (the initial external quotation of sugar mills during the crushing season) significantly increases. Nevertheless, the company's sugar storage capacity will remain restrained and will not return to the state of large-scale stockpiling in the past.

(Author Wang Yajie)