An anti-dumping tax will support the sugar industry
However, the factor investors need to consider is the sugar cane stock which will benefit from the domestic sugar price as part of the state trade policy to support the sugar industry.
Lack of competition
Since January 1, 2020, the domestic sugar industry has continuously faced challenges since joining the ASEAN Trade in Goods Agreement (ATIGA). After the implementation of ATIGA, Vietnam removed customs barriers and quotas for sugar imports from ASEAN countries. This can be seen as a disadvantage as the Vietnamese sugar industry lacks competitiveness with other countries, especially with Thailand.
Crops planted in 2020 and 2021 saw the lowest sugarcane production in the past 20 years, with the area planted to sugarcane nearly halving. According to statistics from the Vietnam Sugarcane and Sugar Association (VSSA), out of 41 sugar factories across the country, only 26 are still in operation. In some localities this year, people even gave up the cultivation of sugarcane or did not bother to take care of the harvest, which resulted in lower yield and quality of sugarcane.
The reasons are poor weather conditions, low sugar prices in previous seasons due to fierce competition from cheap sugar from Thailand, as well as competition from smuggled sugar. Although the Ministry of Industry and Commerce issued anti-corruption measures against Thai sugar, the practice is still widespread.
When there is a shortage of raw sugar cane, it leads to unfair competition between sugar manufacturers, breaking the link between sugar mills and sugar cane growers, which then destabilizes the development of the cane industry. to sugar. In fact, the Vietnamese sugar industry was under pressure from Thailand before the entry into force of ATIGA. Specifically, from 2018 to the present, the domestic sugar industry has suffered severe damage due to pressure from the dumping, smuggling and trade fraud of Thai sugar.
After five months of investigation, the Ministry of Industry and Commerce assessed the damage to the domestic sugar industry in February 2021 and imposed a temporary anti-dumping rate of 48.88% on sugar from Thailand. In June 2021, the Ministry of Industry and Commerce officially imposed an anti-dumping tax of 42.99% and an anti-subsidy tax of 4.65%. The total of these two taxes is 47.64%, effective immediately after the period of application. However, after imposing the above tax, Thai Sugar evaded the tax by transferring sugar originating in Thailand to ASEAN countries such as Laos, Cambodia, Indonesia, Malaysia and Myanmar.
In September 2021, the Ministry of Industry and Trade decided to investigate this commercial fraud and concluded that sugar imported from ASEAN countries was able to evade taxes, causing obvious damage to the domestic sugar industry. This is a decision of great interest to domestic sugar companies and expect the Ministry of Industry and Commerce to soon announce their results, along with the anti-dumping tax rate for sugar imported from countries. of ASEAN mentioned above.
According to sugar sector leaders, the prompt imposition of a tax will create fairness for domestic companies and protect them from tax evasion and sugar smuggling. In the short term, this will help the sugar companies to make a profit. In the long term, it will help restore Vietnam’s sugarcane acreage, which has been greatly reduced.
Therefore, the development of domestic sugar prices is highly dependent on the government’s trade remedy policy to support the sugar industry. The reason for this is that the abundant supply from official imports and smuggled imports makes it difficult for companies to sell below cost price. The price of sugar is now down 8% to even 10% from the peak in the third quarter of 2021, and down 3% from the second quarter to reach around VND 17,250 to VND 17,700 per kilogram at the price of ‘factory.
Some actions benefit
In addition to the impact on the general market, the above difficulties are also the reason for the sharp drop in stocks lately. According to statistics, 3 stocks that represent sugar in the stock market today, namely Thanh Thanh Cong Joint Stock Company-Bien Hoa (SBT), Quang Ngai Sugar JSC (QNS) and Lam Son Sugar Joint Stock Company (LSS ) recorded a decline of 20% to 50%.
Therefore, not only sugar companies but also investors holding sugar stocks are counting the days until the Ministry of Industry and Commerce imposes a protective tax on the domestic sugar industry. The Trade Remedies Department of the Ministry of Industry and Commerce has drafted findings on the investigation into the application of anti-evasion measures to apply trade remedies to certain cane sugar products and will submit them to the Politburo for consideration and will await a decision in the near future. coming.
While waiting for the ministry to decide, many companies are resorting to hoarding of goods. The current sugar inventory is around 370,000 tonnes, just enough to meet consumer demand for around two months. Firms with low inventories as opposed to firms hoarding sugar, shows that not all firms benefit from the sugar industry protection tax. According to forecasts, production cannot recover in 2022 or even in 2023 due to the sharp reduction in the raw material area.
The anti-dumping measures will help companies with a high rate of self-sufficiency in raw materials, such as the Thanh Thanh Cong-Bien Hoa Joint Stock Company (SBT). It is the main company in the sugar industry, accounting for 46% of the country’s market share. According to Vietnam Sugar Association (VSSA) statistics, the current number of factories operating in the whole industry is still 26 factories out of 41, but SBT contributes nine factories with a total capacity of 4,180 tons. of sugar per day.
SBT has also expanded the sugar cane growing area to help maintain its leading position in Vietnam’s sugar industry. SBT currently owns 66,000 hectares of cultivation area in three countries, namely Vietnam, Laos and Cambodia. The company’s goal is to expand the cultivation area in Australia also to 20,000 hectares by 2025, as Australia is a country with the highest sugar cane yield in the world.
Both QNS and LSS stocks do not expect much when anti-dumping measures are applied. Specifically, QNS is the highest priced sugar stock in the industry and is currently trading above 40,000 VND per share. However, the main commercial product of this company is soymilk, which accounts for 20% of revenue and 15% of profit. Therefore, QNS business results are mainly affected by the soy milk segment. On the other hand, LSS has a small production scale, so it is not much affected by the above difficulties.
Source: SGGP/Saigon Investment