June 12, 2012

 

Asian buyers to wait as India's wheat exports go via twin tenders

 

 

As Indian government goes through a twin tender-based process to allocate the grain from government stockpiles, Asian buyers who are looking to India to drag down wheat prices and for securing cheaper cargoes may have to wait a little longer.

 

Under the twin tender process, India may sell cargoes on a free-on-board basis and then separately appoint clearing, forwarding and handling agents to transport the wheat from warehouse to port, government officials and trading executives said.

 

"In the first stage, the FOB bid has to be approved, and if that happens, in the next [stage], the best option available is to invite offers via tenders again for handling, logistics and inland transportation," said one of the government officials.

 

India remains the 'dark horse,' that can turn the tables in its favour to become a major source of wheat by subsidising sales of previous years' harvests from its 50-million-tonne government stockpile, but market players are still uncertain whether a current proposal to this effect will be quickly implemented.

 

The government-run State Trading Corp., in a tender that closed last month, asked private Indian and global trading companies to submit export bids for wheat in official stockpiles. The companies offered to buy the wheat at up to US$230/tonne, free on board, well below current market rates of US$252-255/tonne and also the government's carrying cost.

 

Glencore offered to export a total of 98,000 tonnes of wheat from Kandla and Mundra ports at US$230/tonne and US$228/tonne, FOB.

 

"We want everything to be transparent, above board and subject to scrutiny," another government official said.

 

Traders said since international prices and freight charges keep fluctuating daily, the government may have to invite several tenders from time-to-time to export wheat consignments, which is a time-consuming process.

 

"By the time cargo sets sail, if at all, global prices will already be under downward pressure because of the upcoming European and Black Sea region harvest," said a Mumbai-based trading executive.

 

However, the government officials say that STC doesn't have the wherewithal to arrange FOB cargoes on their own but can issue and finalise tenders to select grain handling agents within days of the government deciding on the FOB bids.

 

Many traders support the process as the best way to export the grain without inviting allegations of corruption. Nevertheless, they also point out that a minimum export price should be fixed to avoid shipments below market rates.

 

Until last week, India's wheat was offered around US$252-255/tonne, FOB, which is higher than the rates quoted in STC's tender, though with the rupee weakening further against other currencies, prices are on the decline. Traders also want multiple bids based on the years wheat in the government stockpile was harvested.

 

The government's stockpile has wheat from harvests of several years, and the latest crop should be offered at a premium to the previous years, said a New Delhi-based executive with a grains commodity trading company.