MUMBAI/SINGAPORE: Indian mills have signed deals to buy up to 450,000 tonnes of Brazilian raw sugar for delivery from October to December as a gap between domestic and overseas prices widens, making room for the first imports in more than two years, five dealers told Reuters.

Millers based in western and southern India and global trading firms bought sugar at around $500 per tonne on a CIF basis, as the price in the domestic market has jumped more than 23 per cent to $680 per tonne in the past three months, the dealers said on Tuesday.

India, the world's No.2 sugar producer after Brazil, last imported the sweetener in 2009/10, sending global prices to 30-year highs. The south Asian country has been exporting sugar for two straight years as output has exceeded demand and the shift to imports could bolster overseas sugar prices.

Global benchmark New York raw sugar futures edged up on Monday as rains persisted in main producer Brazil, but an expected rise in the global surplus kept the market near a two-year low of 18.81 cents hit on Sept. 6.

“The price difference is so high that despite calculating processing and handling costs, importers can make profits of more than $60 per tonne,” said a Mumbai-based dealer with a global trading firm.

India is likely to produce a surplus for the third straight year starting from Oct. 1, but output is likely to drop sharply in the key producing state of Maharashtra, parched by drought.

“Mills in Maharashtra are unlikely to get enough sugar cane. That's why they are seeking raw sugar for capacity utilization,” said Kamal Jain, managing director of sugar brokerage Kamal Jain Trading Services.

India, the world's biggest sugar consumer, currently charges a duty of 10 per cent on imports of raw sugar, but that would be waived if a mill exported the same amount of sugar within three years, Jain said.

India's sugar production in 2012/13 is likely to fall to 24 million tonnes, from 26 million a year ago.

“People who are doing this (imports) are ED&F Man and Renuka. They are parking the cargo, hoping that production will be down in Maharashtra and millers will take the raw sugar,” said a dealer in Singapore.

“They are bringing in four vessels ... they have succeeded in selling about 22,000 tonnes to two mills in Maharashtra.”

THAI PRICES HIGHER THAN BRAZIL

Thailand is quoting very high prices compared with Brazil, prompting India to source her entire requirement from the South American country, dealers said.

Indian farmers are likely to seek higher prices for cane after the government cut the fertiliser subsidy and the season's drought is set to trim yields per hectare.

“Sugar prices will remain firm in 2012/13 due to higher cane price. This will make room for more imports. India may even buy 1 million tonnes of raws in the entire year. Most will get refined in Maharashtra,” said another Mumbai-based dealer.

“There is a risk of local prices going down due to higher supply. But that is even true for the world market. While the difference between local and overseas prices stays, India will import.”

Total supply in India for 2012/13 is estimated at 30 million tonnes, against local demand of about 22.5 million tonnes.

Bumper crops and lower imports by major consumers Russia and China will help global sugar prices to fall further in the 2012/13 marketing year, consultant Jonathan Kingsman said this month.