After a number of white sugar import deals were cancelled by traders, it is now the turn of the mills. Nearly 200,000 tonnes of raw sugar import contracts are on the block.
Given the sharp fall in global prices, while some mills have outright cancelled their raw sugar import orders, others have started renegotiating the deals.
Sugar trade officials say the raw sugar import contracts may either be cancelled or renegotiated as the landed cost now works out to $400 a tonne from the contracted $600.
Mawana Sugars on Wednesday informed the Bombay Stock Exchange that it cancelled an import order for 30,000 tonnes of raw sugar. Though the company did not give any reason, the industry believes it did so to cut the losses it would have incurred following the sharp drop in global prices.
Mawana is not alone. Many mills in northern India have started renegotiating deals, and a major player is even in talks with the sellers to pay off defaults to wash off the deal.
“One of the largest sugar mills in northern India has entered into renegotiations with sellers for two raw sugar cargoes totalling around 90,000 tonnes. It has become very difficult to honour earlier commitments as markets have come off sharply,” an official with a multinational trade firm said.
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Another trade official said Mawana and other mills would have bought raw sugar at around $600 a tonne for July delivery. The imported raw sugar consignment would have cost mills in northern India around Rs 33,000 a tonne after refining, way higher than the current ex-mill cost of around Rs 24,500.
“Replacement contracts would now cost less than $400 a tonne. It is quite unlikely that mills would be able to keep the earlier import commitments,” the official said.
An official with a south Indian mill said mills were already facing sizeable losses due to the sharp fall in local sugar prices. “It would be very difficult for mills to bear any additional losses due to expensive imports,” he said.
Sugar bodies claim mills are facing margin stress as open market sale prices have fallen below their production costs, pegged at around Rs 32,000 a tonne on high cane prices.
Wholesale sugar prices, which had climbed to record highs of around Rs 46,000-48,000 a tonne in January, started slipping in February on government intervention.
They fell to under Rs 25,000 a tonne last month on hopes of improving supplies, as the country readies to produce 23-24 million tonnes of sugar in the next season, up from this year’s 18.8 million tonnes.
The miller in south India said that with margins already squeezed, it would be difficult for mills to bear additional losses on expensive imports. “Most of us don’t have any cushion this year to absorb additional losses,” he said.
Trade estimates peg Mawana Sugar’s losses on the cancelled deal at around Rs 17 crores had the deal gone through.
“What most millers are now doing is going back to the negotiating table to see how the losses can be minimised. But there would be some players who simply cancel contracts and pay penalty,” an official with a mill in Uttar Pradesh said.
The recent wave of contract cancellationand renegotiations comes barely two months after trade houses started defaulting on white sugar import deals.
According to trade estimates, private players have defaulted or renegotiated deals for import of nearly 0.8-1 million tonnes of white sugar since March due to falling global and local sugar prices.
Global sugar markets have been in a free-fall since hitting a high in January end and early February, posting marginal recovery only recently as supplies from Brazil and demand from India slowed down.
Global white sugar prices have dropped to $560 a tonne after hitting a record $767 a tonne late in January, while raw sugar prices have sunk almost 45 per cent after reaching a 29-year high of 30.40 cents a pound at the start of February.
The cancellations could lower India’s sugar import estimates, pegged at around six million tonnes for the last two seasons.