Indian traders selling old season sugar to Iran after subsidy: Report

Exports from the world's biggest sugar producer could put pressure on global prices but will help India reduce its inventories that have driven down domestic prices.

Indian mills are aggressively selling old season sugar to Iran after New Delhi announced a subsidy to help cash-strapped mills export a surplus, five traders said, asTehran strives to secure food supplies under US sanctions.

Exports from the world's biggest sugar producer could put pressure on global prices but will help India reduce its inventories that have driven down domestic prices.

Trading houses have contracted to export to Iran about 350,000 tonnes of sugar for shipments landing in October to December at about Rs 21,600 ($302) a tonne on a free-on-board basis, the trade sources said this week.

They have contracted another 150,000 tonnes for destinations like Sri Lanka, Afghanistan and African countries at around $315 per tonne for shipments in the last quarter of 2019, they said.

On international markets, December white sugar settled at $347.60 a tonne on Wednesday.

"Sugar millers in Uttar Pradesh are quite active this year. They are selling sugar to Iran in rupee terms," said Rahil Shaikh, managing director of MEIR Commodities India.

Under US sanctions, Iran is blocked from the global financial system, including using US dollars to transact its oil sales. Iran agreed to sell oil to India in exchange for rupees but it can only use those rupees to buy Indian goods, mainly items it cannot produce enough of domestically.

Sugar mills in the landlocked northern state of Uttar Pradesh, the biggest sugar producer in the country, traditionally export less quantity as they need to spend more to bring it to ports on the western coast.

But this year they are actively exporting due to simplified export procedures and because of the huge inventory mills have been carrying from the last year's record harvest, said a Mumbai-based dealer with a global trading firm.

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Drought, pests set to cut India's sugar output by almost 3 million tons

National yields likely dropped about 10 per cent due to erratic rain across the country.

Persistent dry weather and pest attacks are set to cut India’s sugar output from a record this year even after farmers in the world’s second-largest producer increased plantings.

Production may total 28.9 million metric tons in the year that began Oct. 1, according to SGS SA, a researcher hired by Bloomberg to survey farmers during September and October in the main growing regions. That compares with the reduced estimate of 32 million tons made last month by the Indian Sugar Mills Association. The National Federation of Cooperative Sugar Factories Ltd. forecast production at 32.4 million tons.

“Sugarcane, with its lush vegetative growth, is very susceptible to drought and the Indian crop suffered from this in 2018 along with attacks of white grub in the key producing state of Maharashtra,” Mark Oulton, global agricultural market research manager with SGS, said in an email. “This will more than offset the overall 7 per cent increase in acreage.”

A smaller harvest than expected by the industry bodies may reduce exports from India, giving some support to prices that have fallen about 6 per cent from their recent peak last month. Crop downgrades in India will force the global sugar market into a deficit for the 2018-19 season, according to Marex Spectron. Still, record production last year means the government is planning measures to help mills export as much as 5 million tons in 2018-19.

Sugarcane planting increased in five surveyed states, with only Tamil Nadu reporting a decline, SGS said. National yields likely dropped about 10 per cent due to erratic rain across the country as well as white grub infestation in some areas of Maharashtra and Karnataka.

Cane Production

SGS surveyed 863 farmers between Sept. 27 and Oct. 20 across six states, including top producers Uttar Pradesh and Maharashtra. The results have a 95 per cent “confidence level” with a margin of error of about 4.3 per cent.

Cane production is seen declining 3.8 per cent to 362.5 million tons. About 70 per cent of the crop will be crushed, according to the survey, while the rest will be used for livestock feed, seeding and jaggery, a local sweetener. SGS used a sugar-extraction rate of 11 per cent for each ton milled, it said citing data from Indian Sugar Mills Association.... Read More

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