INDIA: Sugar importers abandoning deals as prices fall
Published: 03/10/2010, 11:31:12 AM
Indian sugar mills have backed out of import deals to the tune of 100,000 metric tonnes, and traders have diverted cargoes, as tumbling prices make overseas purchases unviable, according to Reuters.
New York sugar futures have tumbled more than 30 percent since hitting a 29-year high in February on technical selling driven by improving supply from top producer Brazil and also Europe.
"There are some washouts and defaults. With very low prices and a rise in production estimates, the mood has suddenly turned very bearish," said Mukesh Kuvadia, secretary general of the Bombay Sugar Merchants' Association.
Analysts say defaults, diversions or washouts -- in which buyers give up the obligation to take delivery by paying a penalty -- may further push down international sugar prices, making purchases by Indian mills attractive.
Officials with two sugar firms and three trading houses, who did not want to be identified, said mills had backed out of import deals for raws and whites of more than 100,000 tonnes, which could rise to 600,000 tonnes if prices did not improve.
"Some have been washed out and some diverted," said a New Delhi-based senior official of the Indian arm of a global trading firm.
A top official with another international trading firm said mills had backed out of deals mostly struck at around US$605-US$620 per tonne between January and February for July shipment.
"Import prices have since dropped by about US$100 a tonne now. I believe about 100,000 tonnes have been washed out," he said.
A senior official of a top sugar firm said if prices did not rise, more mills would renege on import contracts.
"A large quantity has been cancelled. I expect the trend to continue if prices do not pick up. Obviously, these defaults will lead to trade disputes between suppliers and buyers," the official, who did not want to be identified, said.
Two other traders contacted by Reuters said there were no fresh import deals since Feb. 20 because of the lower prices.
"Imports have dried up but India still needs imports," said one of the two traders.
Luke Mathews, a commodity strategist at Commonwealth Bank of Australia in Sydney said that apart from Egypt's purchase of 90,000 tonnes of raws a few days ago, there was hardly any activity in the market.
"The sugar market is bleeding very heavily," he said.