For the first time in five years Indian traders will export raw sugar to Iran for March and April delivery as Iran struggles to secure food supplies under sanctions imposed by the United States, Reuters reported.
Under the 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 which it cannot produce enough of domestically.
Trading houses in India have contracted to export 150,000 tonnes of raw sugar for shipments arriving in March and April at $305 to $310 per tonne on a free-on-board basis. Iran could import as much as 400,000 tonnes of raw sugar from India in 2019 as its local production is not enough to fulfil the demand.
Iran’s state buyer, the Government Trading Corporation (GTC), purchased the Sugar to ensure ample supplies in the coming months. Iran usually buys Sugar from Brazil, the world’s biggest producer and exporter of the sweetener.
The exports will help reduce swelling Sugar inventories in India, the world’s second-biggest Sugar producer. Payments for Iran’s crude oil have piled up in UCO Bank. Iran is keen to utilize the payments to buy sugar and other food items. Iran is paying a premium of as much as $7 per tonne compared to other buyers as traders are anticipating a risk of a delay in payments.
The exports will help reduce swelling sugar inventories in India, the world’s second-biggest sugar producer, but could weigh on global prices that have risen 8.9 per cent so far in 2019 to 13.1 cents per pound.
Iran is expected to import 535,000 tonnes of sugar in the 2018-19 marketing year ending on Sept. 30, according to the International Sugar Organization (ISO). The country’s demand of 2.54 million tonnes outpaces production of around two million tonnes, the ISO said.
Iran bought 720,000 tonnes of the sweetener in 2017-18, the ISO said.