Larger crop, lack of rupees curb Iran's record Indian sugar appetite
By Maytaal Angel and Rajendra Jadhav
LONDON / MUMBAI (Reuters) - India cannot rely on Iran, one of its major sugar customers, for its upcoming export offensive as Iranian production increases and Tehran's rupee shortage limits purchases.
New Dehli last week agreed to subsidize up to 6 million tonnes of sugar exports this season in an attempt to reduce excess inventory and prop up local prices.
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In the 2019/20 season, which ended on September 30, Iran imported a record 1.14 million tons of sugar from India, which, according to Indian customs data, accounts for around 20% of the country's sugar exports.
This year the amount is likely to be significantly lower, which will weigh on overall prices and India will refuse a customer who paid a premium of 4% over world market prices last season.
"Iran (from India) import demand would be much lower (this season). I think about 300,000 to 500,000 tons," said a Mumbai-based trader with a global trading company. He declined to be named because he is not authorized to speak to the press.
An official in Iran told the country's IRNA news agency last month that raw sugar imports from all countries would total around 500,000 tonnes for the Iranian year ending March 21, 2021.
India is granting export subsidies for the third year in a row to move excess inventory.
The subsidy is necessary to cover the difference between high sugar prices in the local and world markets and has helped India export a record 5.7 million tonnes of sugar in the 2019/20 season, with Iran being the largest Buyer was.
The size of Iranian purchases left the country with large inventories.
Data from the International Sugar Organization (ISO) shows that Iran's sugar stocks at the start of the 2020/21 season in October were 723,000 tons, up from 102,000 tons the previous year.
The ISO also expects Iranian production to increase from 1.55 million in the previous season to 1.85 million tons in 2020/21.
Lack of cash
A lack of rupees is also a problem for Iran.
Under US sanctions, Tehran cannot use US dollars to sell oil.
Iran had previously entered into a contract to sell its oil to India in exchange for rupees, which it used to import essential goods, including sugar. However, New Delhi stopped buying Tehran's oil in May 2019 after the lifting of US sanctions expired.
Tehran continued to use its rupees to import critical goods from India and after 19 months of no oil sales, the Islamic Republic's rupee reserves are depleted.
In a letter to Reuters customers, India's UCO Bank, which holds much of Iran's rupee reserves, said that exports to Iran should only be made if the rupees have been allocated and paid for in advance.
"This is also important when you consider that the INR (Indian rupee) balance in the accounts of Iranian banks has been used up," the letter said.
She also said she must from now on review all transactions with Iranian banks to see if they could be carried out on humanitarian grounds.
UCO Bank did not respond to Reuters' email request for comment.
"Travel exporters did not receive payments for supplies (to Iran) more than six months ago. And there is no clarity as to when they will receive them. The delay in payment has made sugar exporters wary," a Mumbai-based trader said with a global Trading company.
Rahil Shaikh, CEO of MEIR Commodities India, said Iran needs to be careful with its purchases in India this season as its rupee reserves are low. For example, it needs to focus on medicines instead of sugar.
(Reporting by Maytaal Angel and Rajendra Jaghav. Editing by Nigel Hunt and Barbara Lewis)
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