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ANALYSIS: India's sugar exports are falling foul of the global container imbalance

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India’s hope that it may export 6m tonnes of sugar this season is running aground, according to the CEO of the All India Sugar Trade Association.

 

He puts the likely export total at just above 4m tonnes; the blame is being laid at the door of a global container shortage.

 

The 35bn Rupees (around $476m) in government subsidies (Rupees 5,833 or about $80) per tonne on offer for sugar exports can do little to help overcome what is a global problem. The Asia-north America and Europe trade routes are yet another unexpected casualty of the Covid-19 pandemic.

 

Container dislocations

 

Asia was the first into the pandemic and the first to exit, battered and bruised maybe but out of it; China therefore was able to resume exports earlier than the rest of the world.

 

Other nations are still dealing with restrictions and reduced workforces which has clogged the usual container traffic flow. In North American ports for example containers have been accumulating at a staggering 60% - for every 100 containers that arrive only 40 are re-exported at the moment.

 

Container leasing rates have soared by about 50% in the past six months and - as a result of the pandemic-induced economic slowdown - container scrapping has exceeded the building of new ones. If there’s no trade, why would you need containers? As a consequence, the price of a new container (China-made of course as it dominates the market) has almost doubled in a year and is now around $2,500.

 

One Indian sugar exporter reckons that there are only about 40% of the country’s total container needs available at present.

 

Short-term problem?

 

India’s container problems seem a direct result of the Covid-19 pandemic; according to the Indian Ports Association there was an 11% year-on-year decline in container traffic across major Indian ports during April-December 2020.

 

Last season (2019-20) India exported 5.7m tonnes of sugar, including a record 1.14m tonnes to Iran, about a fifth of the total. Iran is unlikely to be able to import a similar amount this season due to its shortage of Indian currency.

 

Forecasts are that India will produce almost 30m tonnes of sugar in the 2020-21 season, and 27.4m tonnes last Given that its annual consumption is around 26m tonnes, its inventory levels are climbing once more. According to the International Sugar Organisation (ISO) sugar consumption globally steadily rose by about 2% a year between 2001 and 2018, but has since stagnated.

 

The world sugar balance for 2021-22 is looking to be in a moderate surplus. That ought to translate into weaker prices, which is what the forward curve is telling us - out to July 2023 it’s around 13 cents per pound.

 

India managed to export just 70,000 tonnes of sugar in January this year, less than a fifth of the same month last year.

 

Eventually this global container imbalance will correct itself. But before then some buyers of Indian sugar might face unexpected shortfalls. If that happened a door could open for short-term price spikes, even in agricommodities that currently seem in ample supply, such as sugar.

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