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Pakistan Cancels Sugar Tender: Prices too good to be true?
February 22, 2010
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Trading Corp. of Pakistan had to cancel the tender to import sugar after two of the lowest bidders failed to submit ‘adequate financial’ documents, officials in Islamabad said Monday.

Analysts in New York feel that TCP’s tender process was not ‘above board,’ and they lost an opportunity to import at much better price than local producers can offer.

TCP had received the lowest bid to import 200,000 metric tons of refined sugar at approximately $125 below per ton from an American company. All together TCP had received seven bids for its 200,000 tons of sugar import tender with lowest at $579.90 per ton and the highest at $826 per ton C&F.

TCP officials told us that the lowest offer of $579.90 per ton was from the American Investment Group. This bid is $125 below current market price. Star International had the second lowest bid at $749 per ton for 50,000 ton.

But both, AIG and Start failed to secure bank guarantee. Pakistan requires a total 1.2 million tons to bridge a gap in supplies that has pushed prices to near a record. It plans to import 500,000 tons by June and another 700,000 tons by July.

Earlier, a Dubai based trading firm – Sadan General Trading had won a partial award and has already submitted a bond for $350,000 with the TCP.

Current world sugar range from $706 to $709 per ton Fob, but it is possible that American Investment Group is trying to unload inventory.

Pakistani experts were concerned about low bids from AIG. Chief of TCP was quoted by Dawn saying that AIG must be trying off-load old inventory.

But sugar executives in the US claim that the vast majority of sugar marketed here is sold well below the spot prices commonly reported in the media. They feel that AIG prices offered to TCP were reflective of street price of refined sugar.

Inder Mathur, the CEO of Western Sugar Cooperative says companies in the US sell sugar for an estimated 25-30 percent cheaper than what the USDA reports as average prices.

Most food manufacturers booked this year’s sugar purchases months in advance at lower levels, and few ever pay the asking price, he noted. The same situation occurs in sugarcane-producing regions, too.

Jim Simon, the general manager for the American Sugar Cane League, which represents the Louisiana sugar industry, says producers expect to sell this year’s raw sugar crop for between 23.5 cents and 24 cents per pound.

“This is an improvement from the 20.5 cents seen in previous years, but is certainly not a windfall,” he explained. The publically reported raw price was close to 40 cents per pound last month, and the average price for 2009 was under 25 cents.

The price of sugar, which had been stagnant for more than two decades, has recovered over the past year.

“Prices are still below levels seen in 1985 when they are corrected for inflation,” Mathur told Forum attendees. “And world prices have risen twice as much as domestic.” Sugar shortages around the globe have led to steep price increases worldwide.

He also noted that 23 years of flat prices in America combined with higher input costs have led to contraction and consolidation within the U.S. industry. In fact, 54 sugar mills and refineries have closed since 1985, according to the American Sugar Alliance.

“If the recent price recovery can be sustained,” Mathur concluded, “producers might be able to improve returns over past years, reduce their debt load, re-invest, continue to improve efficiency, and stay in business.”

But despite falling prices in the US market, countries like Pakistan are facing severe sugar crisis. Many blame local producers for the unreasonable hike in sugar prices.

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Ibrahim Sajid Malick

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