India’s white sugar shipments have been brought to a near standstill by the coronavirus lockdown, depriving the global market of key supplies after a poor harvest in Asia’s top exporter Thailand.
Most of India’s private ports have declared force majeure and while government ports are operating, they face labour shortages as Indians have been ordered to stay home and avoid spreading the coronavirus under a 21-day lockdown.
“Ports are functioning for clearing backlogs rather than executing new business,” Rahil Shaikh, managing director of trading company MEIR Commodities India, said.
“Container traffic has virtually stopped, there’s no courier services, no buses, and no public transport. Migrant labour has gone back to the countryside and customs are operating at about 5-10% of capacity,” Shaikh said.
Even before the lockdown, Indian industry officials had cut 2019/20 sugar export estimates to 4.5 million tonnes as a drop in prices had made overseas sales unprofitable.
This could fall further if the lockdown is extended. Most of India’s 2019/20 sugar exports contracts were for white, rather than raw, sugar.
“In the last three weeks, not a single new deal was signed due to labour shortages and lower prices,” a Mumbai-based dealer at a global trading firm said. Two other dealers based in the capital confirmed the trend.
Of the 3.75 million tonnes of sugar export deals agreed to since the start of the season on Oct 1, Indian mills have shipped out 2.86 million tonnes, the All India Sugar Trade Association said.
Shaik said nearly all the remaining tonnages are stuck.
Data from his firm shows private operators like Adani Ports and Special Economic Zone have declared force majeure, while state-run ports such as Jawaharlal Nehru Port Trust (JNPT) are all operating with delays.
On global markets, benchmark prices for refined or white sugar have mostly followed other commodities lower as the coronavirus hits growth.
But the market is signalling tightness ahead, with May white sugar on the ICE exchange trading at a premium to August, while August is at a premium to October , encouraging anyone with stock to export now not later.
The premium for May or front month whites over front month raws is not far off its highest since 2013, signalling to refiners to ramp up processing.
The May white contract will expire on April 15, leaving traders with short positions facing losses if the market moves against them and they are unable to get physical sugar.
“Its difficult to see where supply is going to come from (for the May expiry),” a London-based analyst at a global commodities trader said.
“Nobody is going to tender Thai, its worth a $60-70 premium to the futures. Algeria, one of the few countries that can tender whites against (ICE futures), has stopped sugar exports. We’re really looking at central America, but the United States has just increased its (sugar import) quotas.”
Commodities trader Czarnikow says output in Thailand, the world’s largest sugar producer after India and Brazil, has plunged more than 40% this season.
“Thailand is done now (with their harvest), so all eyes are on India,” Kona Haque, head of research at commodities trader ED&F Man, said.
An uptick in demand is also tightening the whites market as both countries and individual consumers stockpile staples like sugar, Haque said, adding this was not expected to last, with demand, if anything, likely to subside longer term.
There is also some hope the whites shortfall could ease somewhat as exports from Brazil pick up once its harvest gets underway, with ports there more or less operational.