BEIJING/MANILA, July 20 (Reuters) - China's reform of its vast corn sector is spurring a rapid revival of cheaper high-fructose corn syrup (HFCS), putting it on a collision course with Asian sugar producers in a battle for the lucrative sweetener market.
Output of HFCS is set to jump 7 percent this year, according to commodities information service Zhuochuang, as cheap corn from a sell-down of the country's giant stockpiles encourages producers to boost output or restart idled capacity.
After stalling in recent years, HFCS production will hit 4.15 million tonnes, about half of the output in the United States, the world's top producer, where corn-based sweeteners account for nearly half of the sweetener market.
Syrup, used as a sugar substitute in soft drinks and other liquid products, is gaining in popularity in China where it sells for a third of the price of natural sugar made from cane or sugarbeets, and makes up about 20 percent of demand for sweetner.
China's producers have also found willing buyers abroad.
"HFCS is changing the structure of the sugar industry in China and Southeast Asia," said Liu Hande, vice chairman of the China Sugar Association. "Consumption of sugar has been declining in recent years."
Coca-Cola China boosted its use of the liquid last year, two industry sources said, and total demand is expected to jump to 4.06 million tonnes this year, up 18 percent from 2016 and almost double levels in 2012, according to Zhuochuang. Coca-Cola China said it could not confirm increased use of HFCS.
China's HFCS demand compares with expected sugar demand this year of nearly 16 million tonnes.
Exports from Chinese producers grouped in the northern province of Shandong and in southern Guangdong province soared nearly 70 percent in 2016 to 454,843 tonnes, worth about $180 million, and are on track to rise again this year.
About half went to the Philippines, followed by Indonesia, Vietnam and India.
The push sparked anger in the Philippines, where domestic output of 2.5 million tonnes of natural sugar in 2017/18 will already outpace demand.
Imports of syrup to the Philippines surged to 373,137 tonnes in 2016, more than 10 times the levels in 2013, according to the Philippine Sugar Millers Association.
Following complaints from domestic sugar producers, Manila placed restrictions on Chinese corn syrup imports in March.
Coca-Cola and other beverage companies in the Philippines, also agreed to boost their use of domestic sugar, according to a statement issued by the Philippines Agriculture Department late March.
In the two months since Manila's crackdown, China's exports to the Philippines have plunged, with May shipments falling to 1,884 tonnes, down from 34,715 tonnes in March, according to Chinese customs data.
Regional pressure for substitution, however, is set to continue with Chinese HFCS prices falling by almost a third from about three years ago to below 2,500 yuan ($368) per tonne, according to industry insiders.
By contrast, sugar futures prices in China remain elevated at about 6,250 yuan per tonne due to high farm costs. In May, Beijing slapped hefty import tariffs on foreign sugar in a bid to protect the industry, a move that is expected to keep prices at a premium for years.
Traders, analysts and producers say the tensions over HFCS are starting to spread to other countries.
Syrup's rise is undermining industry forecasts that demand for natural sugar will grow in the region's emerging economies as consumption in mature markets like the United States slows amid concerns about the health impact.
"If you have a cheap source of HFCS supply ... this always poses a significant threat to use of sugar," said Stefan Uhlenbrock, senior analyst at F.O. Licht. "It not only happens in the Philippines but also in other countries."
Indonesia's fructose syrup imports hit 107,321 tonnes in 2016, up 55 percent from a year earlier, but are still dwarfed by annual white sugar consumption of up to 6 million tonnes.
"If the (import) amount is big, this can be a threat for refined sugar, because HFCS is basically sweetener, just like refined sugar," said Benny Wachyudi, Chairman at the Sugar Refineries Association, told Reuters by text. ($1 = 6.8010 Chinese yuan renminbi)
Reporting by Hallie Gu and Enrico Dela Cruz; additional reporting by Beijing newsroom, Bernadette Christina Munthe in JAKARTA and My Pham IN HANOI; editing by Josephine Mason and Richard Pullin