However, the factor that investors need to consider is which sugarcane stock will benefit from domestic sugar price under the State trade policy to support the sugar industry. 

Lack of competition

From 1 January 2020, the domestic sugar industry has been continuously facing difficulties after joining the ASEAN Trade in Goods Agreement (ATIGA). After the implementation of ATIGA, Vietnam has removed tariffs and quota barriers for sugar imports from ASEAN countries. This can be considered a disadvantage because the Vietnamese sugar industry lacks competitiveness against other countries, especially with Thailand.

The sown crop of 2020 and 2021 had the lowest sugarcane production in the last 20 years, with the area under sugarcane plantation almost halved. 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 have even left sugarcane farming or have not cared to look after the crop, leading to a decrease in sugarcane yield and quality.

The reasons are bad weather factors, low price of sugar in the previous seasons due to fierce competition from cheap sugar from Thailand, as well as competition from smuggled sugar. Although the Ministry of Industry and Trade has issued anti-corruption measures against Thai sugar, the practice is still prevalent.

When there is a shortage of raw sugarcane, it leads to unfair competition between sugar manufacturers, breaking the link between sugar mills and sugarcane farmers, which then destabilizes the development of the sugarcane industry. In fact, Vietnam's sugar industry was under pressure from Thailand before ATIGA came into effect. Specifically, from 2018 to now, the domestic sugar industry has suffered great damage due to pressure from Thai sugar dumping, smuggling, and trade fraud.

After five months of investigation, the Ministry of Industry and Trade assessed the damage to the domestic sugar industry in February 2021 and imposed a temporary anti-dumping rate of 48.88 percent on sugar from Thailand. By June 2021, the Ministry of Industry and Trade officially imposed an anti-dumping tax of 42.99 percent and an anti-subsidy tax of 4.65 percent. The total of these two taxes is 47.64 percent, effective immediately after the application period. However, after imposing the above tax, Thai sugar evaded tax by transferring sugar originating from 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 trade fraud and concluded that sugar imported from ASEAN countries is able to evade taxes, causing obvious damage to the domestic sugar industry. This is a decision that domestic sugar businesses are very interested in and expect the Ministry of Industry and Trade to quickly announce their results, as well as the anti-dumping tax rate for sugar imported from ASEAN countries named above.

According to leaders in the sugar business, the quick imposition of tax will create fairness for domestic enterprises and protect them from tax evasion and smuggled sugar. In the short term, it will help sugar businesses to make profits. In the long term, it will help restore Vietnam's sugarcane area, which has been greatly reduced.

Therefore, the domestic sugar price movement depends a lot on the Government's trade remedy policy to support the sugar industry. The reason is that the abundant supply from official imports and smuggled imports makes it difficult for businesses to sell below cost price. Sugar price is now down 8 percent to even 10 percent from the peak in the third quarter of 2021, and down 3 percent compared to the second quarter to about VND 17,250 to VND 17,700 per kilogram at factory price.

Some stocks benefit

In addition to the impact on the general market, the above difficulties are also the reason for the sharp decline of stocks in recent times. According to statistics, 3 stocks that represent sugar on the stock market today, namely, the Thanh Thanh Cong Joint Stock Company-Bien Hoa (SBT), Quang Ngai Sugar JSC (QNS), and Lam Son Sugar Joint Stock Company (LSS) recorded a drop of 20 percent to 50 percent.

Therefore, not only sugar enterprises but also investors holding sugar stocks are counting the days for the Ministry of Industry and Trade to impose a protective tax on the domestic sugar industry. The Trade Remedies Department under the Ministry of Industry and Trade has drafted conclusions on the investigation of the application of anti-evading measures to apply trade remedies to some cane sugar products and will submit it to the Politburo for consideration and await a decision in the near future.

While they wait for the Ministry to decide, many businesses are resorting to hoarding of goods. The current sugar inventory is about 370,000 tons, just enough to meet the consumption demand for about two months. Businesses with low inventories as opposed to businesses hoarding sugar, shows that not all businesses benefit from the sugar industry protection tax. According to forecasts, production cannot recover in the year 2022 or even by 2023 due to the severe reduction of raw material area.

Anti-dumping measures will help businesses with a high rate of autonomy in raw material areas, such as the Thanh Thanh Cong-Bien Hoa Joint Stock Company (SBT). This is the leading enterprise in the sugar industry, accounting for 46 percent of the country's market share. According to statistics from the Vietnam Sugar Association (VSSA), the current number of factories operating in the whole industry is still 26 out of 41 factories, but SBT contributes to nine factories with a total capacity of 4,180 tons of sugar per day.

SBT also expanded the sugarcane cultivation area to help maintain its leading position in Vietnam's sugar industry. SBT enterprise currently owns 66,000 hectares of cultivation area in three countries, namely, Vietnam, Laos, and Cambodia. The company goal is to expand the cultivation area in Australia also to 20,000 hectares by 2025, as Australia is a country with the highest sugarcane yield in the world.

The two stocks of QNS and LSS are not expecting much when anti-dumping measures are applied. Specifically, QNS is the listed sugar stock with the highest price in the industry and is currently trading above VND 40,000 per share. However, the main business product of this enterprise is soymilk, accounting for 20 percent of revenue and 15 percent of the profit. Therefore, QNS business results are mainly affected by the soymilk segment. On the other hand, LSS has a small production scale, so it is not affected much by the above difficulties.

Source: SGGP/Saigon Investment