Wednesday, 06 June 2012
Over the next two columns I will discuss QSL’s other origin sugar program and how this helps us create value for our members. To understand why we source and supply sugar from origins outside Australia, we first need to understand why this sugar is needed and it’s really all about meeting demand.
As I’ve discussed here before, the Asian region, where QSL sells the majority of our sugar, is in a structural deficit for sugar supply. This is partially because the region has the strongest consumption growth in the world. Each year around 3 million tonnes of sugar need to be imported from outside the region to fill this supply deficit.
Because of this deficit, QSL experiences strong demand from our customers in Asia. The growth in demand for sugar in Asian markets is around six per cent a year, largely due to increases in population and per capita incomes. This is especially strong when compared to the projected two per cent growth in demand growth around the world.
Unfortunately, the Australian industry does not produce sufficient volume to meet the full demand of QSL’s customer network in the Asian region. This problem is likely to continue in coming years as demand in Asia will continue to grow faster than Australian supply.
To meet this demand, maintain our market share, and strengthen our supply relationships with our Asian customers, QSL buys and sells raw sugar from countries other than Australia.
This helps protect our sustainable, long-term business partnerships and ensures these high-value relationships continue to benefit Australian growers and millers. If we don’t help meet this demand, our market share in Asian markets will decline.
As I discussed here before, sugar sold into this region results in a premium to the ICE11 futures price due to this supply deficit. So QSL works hard to sell as much sugar as we can into this region to help maximise returns for our members and ensure our customers’ demand is met.
The fact that the Asian market requires more sugar than Australia supply is a simple question of supply and demand. That QSL can capitalise on this demand and return the benefits to the Australian industry by buying and selling sugar from other origins explains why this program has been undertaken.
Next week I’ll answer some common questions about the program and talk through the details of how the program is run and how it helps QSL deliver on our key goal, to maximise returns for you, our members.
We continue to see strong demand on the horizon and we are currently forecasting a record Seasonal Pool return for the 2011 season of $510 to $520 per IPS tonne.