Five dealers told Reuters that Indian sugar mills have been renegotiating and breaching commitments to deliver 400,000 tonnes of the sweetener to foreign buyers as prices increased as a result of the government reducing this year’s export quota.
The renegotiations and defaults by Indian mills, the second-largest exporter of sugar, may help to support world prices.
Even before New Delhi approved an export quota of six million metric tons earlier this month, mills began selling sugar to trading houses in late August and made agreements to deliver almost two million metric tons of sugar for export.
“A few feeble mills that signed contracts in advance are not abiding by the agreements.” Unless purchasers are willing to renegotiate at higher prices, they are threatening to default, according to a Mumbai-based dealer with a multinational trading house.
Four additional sources who corroborated the renegotiation or default on the export agreements but asked to remain anonymous since it is against company policy to speak with the media did so.
Approximately 34,000 rupees (US$420) per tonne was the price at which mills in the western states of Maharashtra and neighboring Karnataka sold sugar to trading firms two months ago, but as prices have risen above 37,000 rupees, some mills have backed out of their contracts, according to a second Mumbai-based dealer.
Indian sugar prices increased as the rupee fell to a record low and as world prices increased as India used up its six million tonne export limit, which was less than the over 11 million tonnes it exported the year before.
According to a dealer with a global trading house situated in New Delhi, trading houses sold sugar to foreign purchasers after concluding purchase contracts with the mills.
They (trade houses) are currently stuck. They cannot default or renegotiate like mills.
He claimed that they need to lose money on these deals in order to uphold their brand.
Dealers claimed that because of the defaults by mills in Maharashtra, trading firms are being forced to buy from mills in the northern state of Uttar Pradesh.
Four million metric tons of sugar will be exported by Indian mills between November and February, according to the statement.
Dealers reported that this week, traders were offering white sugar at a discount to London white sugar futures, which were trading above US$568 on Tuesday, at about US$490 per tonne free-on-board (FOB).
Most of the nations that India sells sugar to are in Africa, Indonesia, Bangladesh, Iraq, Malaysia, and the United Arab Emirates.
Another New Delhi-based dealer reported that many mills have stopped negotiating export contracts after selling half of their allotted export quotas because they anticipate more price increases.
He predicted that in the upcoming months, the migration from India would decrease.