New Delhi: Indian sugar mills have cancelled import deals for 100,000 tonnes as traders divert cargoes on tumbling prices that made purchases unviable, sources with sugar firms and traders said on Wednesday.
New York sugar futures extended their decline to 6.7% on Wednesday and traders said weaker demand from India was a key factor. Futures have dropped over 30% since hitting a 29-year high last month 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.
The deputy director general of the Indian Sugar Mills Association (ISMA), Meka Narasimha Rao, said the world’s biggest sugar consumer did not need more imports.
“The sugar situation is comfortable. We do not need more imports. Imports beyond requirement hurts the domestic industry. A fall in domestic prices beyond a point will not help efforts to raise production,” he said.
On Monday, ISMA raised its forecast for this year’s sugar output by 5% to 16.8 million tonnes.
Kuvadia said the new forecast made the outlook more bearish.
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 $605-$620 per tonne between January and February for July shipment. “Import prices have since dropped by about $100 a tonne now. I believe about 100,000 tonnes have been washed out,” he said.
New York raw sugar futures fell almost 6% to a seven-month low on Tuesday, as a bearish crop estimate for top consumer India deepened losses that have wiped a third off prices since the February peak.
Last October, tumbling domestic prices in India as well as declines in New York heightened speculation that importers backed out of some deals but evidence was elusive.
Sugar prices in India’s Kolhapur, a key market in the biggest producing state, western Maharashtra, dropped to Rs3,037.65 ($66.5) per 100 kg last week, the lowest since 28 October.
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 20 February 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.
Industry officials say India has contracted for about 6 million tonnes of sugar since the beginning of the season on 1 October, almost double the quantity ordered in 2008-09 to bridge a shortfall after output almost halved to 14.7 million tonnes.