Refining capacity expanding so rapidly it's caused an imbalance

China's sugar imports jumped almost 20 percent in October due to the country's expanding refining capacity, according to new numbers released by the General Administration of Customs in China.

China, the second-largest sugar consuming country after India, imported 709,873 metric tons in October, compared to 591,855 metric tons in September. October's numbers reflect almost a 109 percent increase over the same period last year.

The country's sugar-refining capacity has increased substantially over the last few years, with refining doubling to more than 7 million metric tons this year from 3 million metric tons in 2010, according to a September International Sugar & Sweetener report from commodities consultancy F.O. Licht.

The country's refining capacity is expanding so quickly that the China Sugar Association announced stricter controls for processing, said F.O. Licht, since the expansion has "caused a structural imbalance in the industry and created 'vicious competition.' This is not conducive for the development of the industry and seriously damaged the interests of sugar farmers," according to F.O. Licht.

Domestic sugar prices in China have been high, with the government purchasing the sweetener to support the country's 40 million sugar farmers. But high prices at home encourage buyers to import from the global market, where sugar is trading at a three-year low, according to Reuters.

Stockpiling sugar in China has caused excessive supply in the domestic market. In November, Zhao Lihua, director at the economy and trade division of the country's planning agency National Development and Reform Commission, said at a conference in Kunming that China might begin reducing its sugar inventory to prevent oversupply.

China purchases sugar from its farmers to "ensure farmer interests and stabilize production," according to the head of the China Sugar Association. China's farmers face some of the highest production costs in the world, which the US Department of Agriculture (USDA) estimated in a November report to be around 5,300 to 5,400 yuan ($870 to $886) per ton. A May article from Bloomberg places China's production costs at 30 cents per pound, compared to the 18 to 19 cents per pound by Brazil, the world's largest sugar producer.

"High production costs constitute a long-term challenge for the sugar sector in China," the USDA said in the report, "particularly during periods of low international sugar prices. Since China supports domestic sugar producers through government purchase prices that are above international prices, favorably priced imports continue to flow into China."

The USDA forecast that China's sugar production will be 14.8 million tons for 2013-14, up from the 14 million tons for 2012-13.

"Consumption, which outpaces production, continues to expand yet stocks continue to build," the USDA said. In 2012-2013, China consumed 15.1 million tons of sugar, compared to the 10.42 million consumed by the US, and China had reserves of 6.79 million tons.