INDIA: Sugar buyers may renegotiate contracts
Published: 03/05/2010, 8:26:25 AM
Sugar buyers in India, the world's biggest user, may renegotiate some import contracts as a decline in domestic prices to a four-month low makes overseas purchases unprofitable, according to Bloomberg.
"With the rapid fall in the market, chances of this type of activity occurring have increased," Michael McDougall, a senior vice president at Newedge USA, said in a telephone interview. "The market is not moving in their favour and is moving against them."
Reworking contracts or possible defaults by buyers in India may pressure global prices that have dropped 28% from the three-decade high reached Feb. 1. India has contracted to import 5.9 million tonnes in the season started Oct. 1, more than double the quantity bought last year, and needs an additional 1 million tonnes, according to the Indian Sugar Mills Association.
"Some people that have purchased at prices that are above current prices will be less likely to buy anything additional despite the fact that the market is cheaper," McDougall said. "They have certainly seen an increased risk in the sugar that they have purchased."
"Global prices are influenced by Asian import demand and there hasn't been any significant buying by India, Pakistan and Indonesia in the last one month," Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd., India's biggest refiner of the commodity, said in an interview to Bloomberg-UTV.
The government extended duty-free purchases of white sugar until Dec. 31, ordered bulk consumers to hold inventories for no more than 10 days from 15 days earlier, and asked producers to sell on a weekly basis from fortnightly sales earlier. Trading in sugar futures has been suspended.
"The shutdown of futures doesn't allow importers to hedge their products," McDougall said. "This is short-sightedness of the government."