Industry Trend Analysis - Pivotal Year Ahead For Thailand Sugar Amidst Sector Reform - JAN 2017

BMI View : 2016 and 2017 will be pivotal years for Thailand ' s sugar sector as authorities are in the process of reforming the industry ' s production and distribution policy. Although uncertainty still prevails at this point, we believe the upcoming changes are unlikely to negatively affect the positive outlook for sugar production and exports , as the government appears committed to support ing cane acreage and sugar by-products diversification.

2016 and 2017 will be pivotal years for Thailand's sugar sector, on a number of fronts. First, cane and sugar production will record a third consecutive decline in output. Second, the country will reform its decade-old supportive sugar policy in the coming months, as it is coming under attack from Thailand's sugar competitors on the export market, Brazil and Australia. Finally, authorities have recently confirmed their goal to expand cane acreage, refining capacity and by-product development.

In terms of production, Thailand is still being severely affected by the lingering impact of El Nino, although the phenomenon ended in mid-2016. The country recorded its worst drought in more than 20 years in 2015 and H116, which damaged the crops of both 2015/16 and the upcoming 2016/17 season. In fact, we have revised down our estimate for sugar production in 2016/17 to 9.5mn tonnes (down 1.5% y-o-y, and compared with a previous estimate of 10.0mn tonnes). The drop in cane supply has dented the sector this year. Sugar mills - including Khon Kaen Sugar, Khonburi Sugar and KTIS Group - will miss out on the sharp rally in international prices and record lacklustre financial performance in FY2016 ( see ' Khon Kaen Sugar Industry PCL ' , September 20). The recent degradation of the outlook for domestic cane supply in 2016/17 will also delay the recovery in performance, as mills will struggle to find feedstock for sugar refining and by-product production (ethanol, power).

Positive Production Outlook Globally
Select Countries - Sugar Production ('000 tonnes)
f = BMI forecasts. Source: USDA, National Statistic, BMI

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