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China's sugar futures fell yesterday, because of the sugar auction and the government's plan to release more sugar reserves.

White sugar futures for January 2007 delivery, the most actively traded sugar futures, fell by 66 yuan (US$8.25) to 4,702 yuan (US$588) a ton on Zhengzhou Commodity Exchange yesterday.

China auctioned 92,000 tons of sugar yesterday, averaging 4,742 yuan (US$593) a ton.

The auction, which has been long scheduled, coupled with the news that the government is to release more sugar reserves, contributed to the price fall in the futures market.

National Development and Reform Commission (NDRC), China's top economic policy-making body, announced on Monday that it would process 600,000 tons of reserve sugar to alleviate the tight market supply.

China has already sold 184,000 tons of sugar at two auctions in January in a bid to rein in the rising prices.

But the efforts largely failed then, prompting it to sell another 368,000 tons of reserve white sugar in four auctions, with each round selling 92,000 tons.

Yesterday's auction was the second one of four planned auctions, with the remaining two scheduled to take place on May 23 and May 30.

But analysts cast doubt on the government's "continuous" auctions.

"If all the auctions are meant to lessen the tight supply in the market, then it is welcomed," said Yu Mengguo, senior analyst at Jinpeng Futures Co Ltd.

"But if they were intended to drive down the sugar price, it is misleading and will be largely in vain," Yu said, maintaining that current domestic sugar prices are not high when considering prices in global markets.

"Instead of relying on the government to protect them from price swings, which are inevitable in a market economy, they should learn to hedge their risks through available tools such as the futures market," said the analyst.

Government's continuous sugar auctions, if only intended to curb the rising prices, the analyst say, "will likely to make those domestic sugar-makers and sugar-users numb about the business risks in the market."

"This is neither helpful for them to sharpen competitiveness and nor to the development of the white sugar futures market," Yu said.

Zhengzhou Commodity Exchange, one of country's three futures bourses, introduced white sugar futures in January.

China is expected to produce about 9 million tons of sugar in the 2005-06 sugar-making season, while its consumption is expected to hit 10 million tons at the same time, according to the China Sugar Association.

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