By Rajendra Jadhav and Mayank Bhardwaj
MUMBAI, Oct 16 (Reuters) – 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, as Tehran strives to secure food supplies under U.S. 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 21,600 rupees ($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 U.S. sanctions, Iran is blocked from the global financial system, including using U.S. 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.
“With exports, mills are creating space for new season production and raising money to buy cane from farmers,” he said.
India has approved a subsidy of 10,448 rupees per tonne to export 6 million tonnes of sugar in the 2019/20 marketing year that started on Oct. 1.
But trading houses are expecting the country to export around 4 million tonnes due to a drop in global prices.
“Iran cannot buy the entire Indian surplus. We need to sell more to Asian and African markets, which right now is difficult due to lower global prices,” said a Mumbai-based exporter.
India is expected to start the new marketing year with carryover stocks of 14.2 million tonnes, the government says.
Mills could start the crushing season from next month and produce 26.3 million tonnes of sugar in the current marketing year, down from 33 million tonnes a year ago, but higher than local demand of around 26 million tonnes.
($1 = 71.4400 Indian rupees)
(Reporting by Rajendra Jadhav; Editing by Edmund Blair)