NEW DELHI – Shipments of 150,000-200,000 tn Indian sugar destined for Iran have been sold to Malaysia and Bangladesh as buyers in the Persian nation failed to open Letters of Credit within the stipulated time period mentioned in the export contract, two industry sources close to the development said.
Letters of Credit provide exporters the confidence to allow them to ship their goods in advance of the receipt of payment.
Iran has been buying sugar from India since the start of the season at a premium because they cannot buy from any other country due to the US sanctions. Last year, the US had imposed sanctions on Iran, following which Iran had agreed to sell oil to India in rupee terms and it uses the Indian currency to buy sugar and other Indian goods.
"Sugar which was supposed to be delivered to Iran kept lying at warehouses as Iranians failed to open LCs so sellers in India diverted that quantity to the world market. Opening of LCs can be done easily only by credible or government buyers," an official with a global food trader and manufacturer said.
Iran was offering 24-26 rupees per kg for raw sugar and low quality whites in January, while other nations were buying the sweetener at 20-22 rupees.
When international prices rose over 17% in January, a few cooperative mills in Maharashtra started re-negotiating export deals and asked for higher prices, several industry sources said. Default on export deals of raw sugar are also likely to have happened in January when prices rose.
In January, raw sugar prices on Intercontinental Exchange Futures US had risen to a two-year high fuelled by the rally in crude oil prices, possibility of lower output and short covering by fund houses.
The rise in prices led to a spate of export deals being signed. So far, mills in the country are likely to have signed deals to export about 3.6-3.7 mln of the sweetener in the ongoing season, against the government's target of 6 mln tn. Of the total quantity, mills have shipped out 2.6-2.7 mln tn so far, according to industry estimates.
However, global sugar prices have again crashed making exports unattractive for Indian mills as selling in the domestic market is now more profitable. The most-active May contract hit a five-month low of 12.18 cents per pound on Friday. At 1529 IST, the May contract was down 0.16% at 12.57 cents.
If global prices don't rise, new deals are unlikely from India, an official with a US-based multinational trading firm said.
"Market is on a free-fall, there is no hope of more exports if things continue like this. Whatever has been signed so far will only be shipped. India is not offering raw sugar right now and not much quantity is even available with mills," he said.
Indian Sugar Mills Association expects India to export 5 mln tn sugar in 2019-20 (Oct-Sep), the highest in a decade. US$1 = 73.71 rupees