Dubai may sell more sugar to Pakistan after poor yield

DUBAI // The Dubai Government is considering a deal to sell almost US$400 million (Dh1.46 billion) of sugar to Pakistan as poor harvests have led to shortages and high prices. Dubai is in talks about selling between 600,000 and 650,000 tonnes of white sugar to Pakistan, but the amount could double depending on the Asian country's sugar harvest, a source familiar with the contract said.

The deal is still under negotiation, the source said, but the initial shipment alone could be worth between $366m and $396m. "If it's a good harvest in Pakistan, then it will be less obviously," the source said. "If it is a bad harvest, it could go up to 1.2 million [tonnes]." The price of sugar on world markets has climbed to record highs in the past year due to a global shortage. Poor weather has hurt harvests in two of the biggest producing countries.

A poor monsoon season in India cut its sugar output and turned the major exporter into a major importer. But in Brazil, it was excessive rain that reduced sugar yields, said the sugar brokerage and analyst Kingsman Group. Kingsman predicted demand would outstrip supply by 11.92 million tonnes for the 2009-2010 crop season. Global demand for sugar will be particularly high before the crop from Brazil reaches the market in May and the Indian sugar crop becomes available in November.

The cost of sugar climbed to the highest level in 29 years before easing last month and this month, due to hedge funds selling off commodities to adjust their positions against a high dollar. White sugar futures last traded at $609.50 a tonne in London. Pakistan's harvest has been hampered by poor weather and the Trading Corporation of Pakistan is looking to import sugar to bridge the gap. The sugar deal with Dubai, if signed, would be on the basis of deferred payments, possibly paid between six months and one year after the shipment, the source added.

The agreement still needs to be approved by the Pakistani government, the source said. The deal, if signed, would probably be finalised within the next two weeks. It will not be clear whether Pakistan needs another shipment of sugar until May or June, after the harvest, the source said. Pakistan bought 50,000 tonnes of white sugar from Singapore's Agro at $779.95 a tonne on February 24. It also purchased 50,000 tonnes from Sadan General Trading of Dubai at $585 a tonne in a February 15 tender, Bloomberg reported.

Pakistan needs a total of 1.2 million tonnes to replenish its supplies. Saeed Ahmad Khan, the chairman of the Trading Corporation of Pakistan, told Bloomberg on Thursday that it planned to import 500,000 tonnes by the middle of May by inviting bids. aligaya@thenational.ae