The Hindu Business Line : UP mills sell back raw sugar contracts

The sudden spike in international prices has led to some mills apparently opting for “washout” settlements of their previously entered lower-priced raw sugar import contracts.

“A few mills, mainly in Uttar Pradesh (UP), have washed out existing contracts, taking advantage of the rise in New York raw prices from 22-23 cents to 26-27 cents a pound in less than a month's time,” sources told Business Line.

A washout basically involves a cash settlement in which the buyer opts out of existing purchase contracts by selling it back for an agreed discount to the current price.

“It makes sense if the mill feels it is not worth the effort to physically bring in the raw sugar and then refine it. This is more so when States such as UP are not even allowing the imported material to be brought in. So rather than wait for the uncertainty to lift, one may as well make a decent margin through washout of existing deals”, they pointed out.

The exact quantity of ‘washed-out' contracts is not known.

Meanwhile, the Agriculture Minister, Mr Sharad Pawar, on Wednesday, asked UP mills to get their raw sugar refined in other States in case the State Government was not willing to lift curbs on entry of imported raw sugar.

“If there is problem in a particular State, they can take advantage of the capacity available in Gujarat, Tamil Nadu, Maharashtra and Karnataka. We will give permission to them,” he said.

The UP Government had imposed the entry restrictions on imported sugar in the wake of last month's agitation by cane farmers demanding higher prices. Although the agitation is over, the State is yet to issue directives lifting the curbs.