The Ministry of Commerce (MOFCOM) said last Thursday it would sell 184,000 tons of sugar from state reserves this month in two auctions in a bid to lower rocketing prices.

Half of the sugar reserves will be auctioned tomorrow and the other half on January 16, according to a press release from the ministry.

The lowest auction price will be 3,800 yuan (US$469) a ton. Sugar prices on the domestic market stood at around 4,500 yuan (US$556) a ton on December 30.

Sugar prices rose by 60 percent, or 1,000 yuan (US$123), in November compared with the same period of 2004.

The reserve to be auctioned is finished sugar processed by nine companies, which won the contract to refine the sugar from the National Development and Reform Commission (NDRC) and the MOFCOM.

The MOFCOM and the NDRC last month decided to process a certain amount of raw sugar from reserves into finished sugar as quickly as possible so it could be sold.

An MOFCOM official said the recent sugar price surge was partly attributed to delays in the processing of sugarcane in south China.

This triggered market speculation and resulted in sugar producers becoming unwilling to sell their products as they waited for prices to rise.

Analysts predict the coming auctions will have an immediate impact on soaring sugar prices, but the effect is unlikely to last as the country's increasing demands still outpace production.

The gap between demand and supply is about 1 million tons.

But Chen Xin, a futures analyst from Jinpeng Futures, said the auctions are not good news for the new sugar futures.

The Zhengzhou Commodity Exchange is scheduled to start trading refined white sugar futures on Friday.

"A large amount of low-priced sugar on the market is not a good opening for futures trading," he said.

In the long term, he believes the trading of white sugar futures will help perfect China's market for the product, improve the pricing mechanism and help companies avoid risk.

(China Daily January 4, 2006)