China's decision to auction nearly 400,000 tons of white sugar in the coming weeks is likely to keep prices at bay for a while, but not for long if sugar prices remain high on global markets, analysts say.

A total of 368,000 tons of reserve white sugar will be sold at four auctions, with each round selling 92,000 tons, according to a statement jointly issued by the National Development and Reform Commission (NDRC), the Ministry of Commerce and the Ministry of Finance on Monday.

The sugar auction is "due to output reduction and the need to stabilize market supply and prices," the statement said.

The first auction will be held next Tuesday, with the three others on April 25, May 23 and May 30.

The auction price is set at 3,800 yuan (US$468) a ton, a price that analysts say is "surprisingly low."

The planned auction will be open only to sugar end-users, excluding sugar-makers, Shanghai Securities Journal reported yesterday.

Only industrial consumers, such as beverage-makers, will be eligible to bid in the first two auctions, while the last two auctions will be open only to retailers and other commercial firms, the Shanghai-based business newspaper said.

"As in other auctions, it is natural that there will be qualifications set for bidders," an official from the NDRC explained.

The restrictions, analysts say, are meant to ensure the auctioned sugar ends up in the right hands by keeping speculative firms out of the bidding process.

White sugar futures for September delivery gained 72 yuan (US$9), or 1.5 per cent, to reach 4,713 yuan (US$587) a ton yesterday on Zhengzhou Commodity Exchange, one day after the auction announcement.

The same white sugar futures contracts have tumbled from their record high of 6,246 yuan (US$778), which was set on February 6, to an all-time low of 4,638 yuan (US$578) yesterday before rebounding.

"The long-anticipated auctions have weighed heavily on traders' minds in the futures market which, in part, has contributed to their recent price drop," Yu Mengguo, an analyst at Jingyi Futures Co Ltd said.

But the analyst doubted that the planned auctions would have a lasting downward effect on sugar prices, given prices on international markets were still high.

"Considering global price are high, the current sugar price in China cannot be said to be too high," said an official from the China Sugar Association, who asked not to be named.

The price of sugar has surged since last November.

China has already sold 184,000 tons of sugar at two auctions in January in a bid to rein in the rising prices, but those efforts have largely failed.

"Judging from the current sugar price level, the January auction was largely a failure," Yu said.

Spot sugar prices in the Guangxi Zhuang Autonomous Region, one of country's main sugar-producing regions, were around 4,700 yuan (US$586) a ton yesterday.

China produced about 9.17 million tons of sugar in the 2004-05 sugar-making season.

The country consumed about 10 million tons of sugar in both 2004 and 2005, a figure that is expected to be maintained this year, according to estimates from the China Sugar Association.

The country is expected to produce about 9 million tons in the 2005-06 sugar-making season.

Source: China Daily