HSC Securities: RE Sugar Processors to Benefit from Developments

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Oct 26th, 2016

Sugar association proposes that future sugar imports be raw sugar only with the auctions conducted at the beginning of the year

  • This would benefit RE sugar processors by eliminating refined sugar imports
  • Currently over half of imports mandated under WTO consists of already refined sugar
  • This more active stance may be seen as part of the consolidation of industry
  • Change in timing of the auction would also better suit processing companies

The Vietnam sugarcane and sugar association (VSSA) has made two suggestion to the government concerning the auction for the right to import estimated 89,000 tons of sugar under the WTO commitment in 2017. Accordingly the VSSA has suggested (1) that the auction to be held in Q1 2017 instead of Q3 previously. To coincide with the active sugar processing season from November to June. And (2) that all of the sugar imported under quota system consist of raw sugar only instead of less than half currently.

Currently there are 40 sugar plants nationwide with total designed capacity of around 155,300 tons of sugarcane per day, of which 50% of capacity is used to process refined extra (RE) sugar and the rest is normal refined sugar (RS) and brown sugar. Local processors can process both kinds but RE sugar carries higher margin (we estimate at 17% vs. 14%).

This would benefit RE sugar processors by eliminating refined sugar imports – If the suggestion is approved, this would obviously be good news for (1) Sugar processing companies as they will have more raw sugar to process and sell (2) for those which can process RE sugar from raw sugar such as Bien Hoa Sugar JSC (BHS), Thanh Thanh Cong Tay Ninh Sugar JSC (SBT – Underperform), Lam Son Sugar JSC (LSS) as they can lower their production cost if they can get the quota. Last season SBT used about 100,000 tons of raw sugar while LSS used 14,000 tons of raw sugar of which 5,000 tons were imported under quota.

Currently over half of imports mandated under WTO consists of already refined sugar – Last month in Hanoi the Ministry of Industry and Trade (MOIT) held an auction for the right to import 85,000 tons of sugar including 40,000 tons of raw sugar and 45,000 tons of RE sugar under the WTO commitment for 2016. At a starting price of VND1 million/ ton, MOIT collected VND139.5 billion from the auction. The right to import 40,000 tons of raw sugar was won by Bien Hoa Sugar JSC (BHS) 14,444 tons, Thanh Thanh Cong Tay Ninh JSC (SBT) 14,444 tons and Khanh Hoa Sugar 11,110 tons.

This more active stance may be seen as part of the consolidation of industry – Hence we can suppose that BHS & SBT might be the future main beneficiaries of such a proposal. And also follows the sale of HAG’s sugar plantation in Lao which will be operated by or the other (or both). Not to mention the ongoing intense speculation about a possible merger between both companies.


Change in timing of the auction would also better suit processing companies – Normally crushing season starts in November (some can start a bit earlier) and ends in April, then the plants who can process RE sugar from raw sugar will continue production till May – June. For season 2015/16 all over the country sugarcane plantation area decreased 6.7% to 284,367 ha and total sugarcane volume decreased 8% to 18.3 million tons meaning yield of 64.4 tons/ha. Process sugar volume came to 1,237,300 tons (-12.73% y/y), of which refined sugar contributed 630,000 tons. For current season the VSSA estimated crushing sugarcane volume of 15 million tons (-18% y/y) giving sugar volume of 1.4 million tons. While the USDA reported that in last season 2015/16 Vietnam’s sugar consumption reached 1.97 million tons (+8.6% y/y) and forecast consumption for 2016/17 will come to 2 million tons (+1.3% y/y).


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