New Delhi banned wheat exports on Saturday, just days after saying it was targeting record shipments of 10 million tonnes this year, as a scorching heat wave curtailed output and domestic prices hit a record high.
Only exports backed by letters of credit (LCs), or payment guarantees, issued before May 13 can proceed before the ban takes effect, India has said.
But of the around 2.2 million tonnes of wheat currently at ports or in transit, traders have LCs for only 400,000 tonnes, a Mumbai-based dealer with a global trading firm said.
“Exporters don’t know what to do with the remaining 1.8 million tonnes. Nobody thought the government will outright ban the exports,” said one dealer, who declined to be named due to company policy.
One Mumbai-based trader said the ban could force it to declare force majeure on shipments to overseas customers.
“We bought wheat from traders and moved it to ports,” the trader said. “Our intention is to fulfil export commitments, but we can’t overrule government policy. Therefore, we don’t have any option but to declare force majeure.”
Global buyers were banking on supplies from the world’s second-biggest wheat producer after exports from the Black Sea region plunged following number one exporter Russia’s Feb. 24 invasion of Ukraine.
Importers such as Bangladesh, Indonesia and United Arab Emirates may struggle to find alternative suppliers amid rising global prices.
The abrupt ban will also make it harder for exporters to sell stocks lying at ports profitably.
They may have to re-sell those cargoes into the weaker domestic market, which has been under fresh price pressure since the export ban news emerged, a New Delhi-based trader with a global trading firm said, and will also have to pay reloading and transport costs.
Around 1.4 million tonnes of wheat is currently stuck at western ports like Mundra and Kandla or in transit there, while around another 800,000 tonnes is at the Kakinada, Tuticorin and Visakhapatnam ports on the east, dealers said.
“Vessel loading has stopped at a few ports. Thousands of trucks are waiting to unload at ports without any clarity,” the trader said.
Global trading houses are among those affected by the ban, as in some transactions their Indian subsidiaries had sold the wheat to their regional headquarters in Singapore before securing the necessary LCs, said an exporter.
Strong export demand and an assumption that the government would support shipments of at least 8 million-10 million tonnes encouraged exporters to move cargoes to ports after making purchases from farmers, said a New Delhi-based dealer with a global trading house.
Every trading house wanted to ship as much as possible before the end of June, as crop movement becomes difficult once monsoon rainfall picks up, the dealer said.
“The commerce ministry and even state governments were helping exporters. Exports were profitable, so we never thought the government would do something like this,” he said.