Supply-chain chaos in India looks set to hamper sugar shipments from the world’s second-biggest producer, with a jump in local freight costs squeezing trader margins.
The availability of railway wagons is scarce due to high demand from other critical sectors such as coal for power plants, resulting in a surge in truck transport rates. Traders are also facing many other issues, including high diesel prices and limited availability of storage at some ports.
If the situation continues, it will be tough for Indian exporters to meet the target of shipping 6 million tons in the year that started in October, said Yatin Wadhwana, a director at commodity trading and advisory company Gradient Commercial Pvt. Truck rates have surged 30% to 40% in the past month and that will hurt profits, he said.
India’s transport bottlenecks could delay shipments by local mills, which have signed contracts to export as much as 4 million tons so far this season, but started supplying late due to unseasonable rains in November. Lower sales by India could support global sugar prices, which recently fell to near the lowest level in six months.
Fresh export deals are not being signed at the moment as global prices are too low, Wadhwana said by phone. Anything above 20 cents to 20.5 cents per pound will be profitable for Indian exporters, he said. Prices are at about 18 cents currently.
“We are not getting railway rakes as per our requirements and it’s a fact that there are challenges in the movement of cargoes,” said Adhir Jha, chief executive officer and managing director of Indian Sugar Exim Corp., referring to rail coaches. Margins will be under pressure due to rising freight charges, while carrying costs will rise if sugar needs to be stored for a longer time, he said.
However, Jha is optimistic that a shortage of sugar in Russia could boost India’s exports to countries in central Asia. –Bloomberg