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FEATURE: Container tightness slows India's Q1 sugar export pace

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FEATURE: Container tightness slows India's Q1 sugar export pace

Highlights

India's Jan total sugar exports at 329,185 mt, falls 59% on year

Widening inverse between London No. 5 Mar and May futures amid container shortage

Container crunch expected till end of June

Singapore, New Delhi — The lack of shipping container availability in India has affected the country's sugar export pace in the first quarter of 2021, putting pressure on India's ability to achieve its 6 million mt export target.

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Total shipments out of India for January was at 329,185 mt, which is well below the 802,408 mt in the same month last year, according to a shipment report seen by S&P Global Platts.

In the current October 2020-September 2021 season, the top three importers of Indian sugar over Oct. 1-Feb. 7 is Indonesia at 32%, Afghanistan at 24% and Sri Lanka at 16%.

At the end of 2020, market participants were initially confident that exports out of India could potentially be at full force given the three-month delay in the announcement of Indian sugar subsidies on Dec. 6.

Container freight rates for most destinations from India have more than trebled since the start of the sugar season in October, Harshveer Soni, head of trade firm GreenLeaf said.

Though traders are willing to pay the higher freight the bigger issue is getting containers and space on vessels to ship the containers. "If you ask for 50 containers for exporting white sugar to Colombo, you will be lucky to get even 10-15," Soni said.

India's food ministry met representatives of the sugar industry as well as the Container Shipping Lines Association of India on Feb. 5 to look into the issue. The ministry asked the container association to suggest ways to ease the container shortage.

Traders said that apart from the suggestion of loading sugar on bulk vessels for some destinations, there was not much else the container association could offer.

According to trade estimates, Indian mills and traders have contracted sugar exports of close to 2 million mt for the current season, more than 600,000 mt of which is white sugar that usually ships in containers.

UPTICK ON WORLD SUGAR PRICES

Trade sources noted that the tight supply of containers and the reduction in Indian exports is one reason for the firm sugar prices on the front month London No. 5 white sugar futures.

The inverse spread between the London No. 5 March and May futures reached a year-to-date high of $21.40/mt on Feb. 5, reflecting a stronger market sentiment on the front month futures.

"The container shortage in India will mean that there is more demand for sugar to be shipped in bulk, and this could be a reason why open interest for the London March delivery remains high," a trader told Platts.

"If it is a big market, sellers will switch to a bulk vessel, but the problem is that many of the destinations for Indian sugar are much smaller markets that don't need a 10,000-15,000 mt vessel," Indian Sugar Exim Corp managing director Adhir Jha said.

Production cuts from Thailand, the EU and Russia were also factors supporting the futures prices, while higher import demand from Pakistan and Indonesia might be bullish for sugar prices going forward.

CONTAINER FREIGHT OUTLOOK

A Thai-based source said the jump in container freight for India route could pave the way for destination buyers to secure Thai cargoes despite the high premium for Thai 45i sugar.

S&P Global Platts assessed Thai 45i sugar for prompt month loading at $525.80/mt FOB Thailand in containers on Feb. 8, which is a $125/mt premium to Indian LQW in containers on a FOB basis.

While the flow of containers had shifted to North America and Europe, several trade sources are hoping that the container ships would be repositioned to Asia over the next few months.

"It has been difficult for us to export Indian sugar because of the expensive freight, but we are hoping that liners will bring those containers back to Asia after the Lunar New Year," a Singapore-based white sugar trader said.

Those in the container industry, however, say this view is too optimistic, and the dearth of containers is expected to continue at least until the end of June.

The container shortage will not be over for months, as containers are still stuck in the US and Europe, a logistics expert said.