PEC takes on wheat MNCs
The stranglehold of multinational trading companies on the country's wheat import contracts is finally being challenged.
By Nidhi Nath Srinivas, TNN |
NEW DELHI: The stranglehold of multinational trading companies on the country’s wheat import contracts is finally being challenged. Public sector PEC has offered wheat that is much cheaper than what foreign companies such as Cargill have quoted in STC’s latest wheat import tender due to smart trading on the Chicago Board of Trade.
Buying large quantities at globally-competitive prices from PEC ought to be a win-win for the country because the profit PEC makes on imported wheat deals would go back to the government coffers.
PEC has offered 50,000 tonnes of wheat at $385 per tonne, which is the same price quoted by MNC trading company Glencore. The two had the lowest bids in the tender which opened on Wednesday. Together, STC received bids worth 5.3 lakh tonnes of wheat from six companies in a price range of $385-434 per tonne for its global tender to import the food grain.
“We have managed to offer cheaper wheat than the MNCs because of our positions on Chicago Board of Trade. We have wheat cheaper than what Cargill is offering to STC because of the timing of our positions. Since we bought positions when wheat was cheaper, we have an immediate advantage. Once STC makes up its mind, we can easily offer much larger quantities,” said sources.
Wheat futures at the Chicago Board of Trade hit 11-year high of $7.41 a bushel this month. In all likelihood, the prices will continue their upward spiral and STC’s next tender some months later may well open at $450-a-tonne level.
Like all the bidders in the tender, PEC expects to make a profit on the wheat it sells to STC. It has also included a risk premium to cover delays in doing business. “We will be importing from a foreign supplier and the demurrage and hedge risks will be on our books. So, we have to take that into account like any other company,” they added.
Judged purely on commercial grounds, there appears no reason why STC would not consider PEC’s bid in the same way as other bidders, which include Cargill, Toepher, Starcom and Ameropa. Glencore has offered to supply the maximum quantity of three lakh tonnes. Cargill India has offered to supply 80,000 tonnes while Toepher International 70,000 tonnes, Switzerland-based Ameropa 25,000 tonnes and Starcom 5,000 tonnes.
Another Indian firm Yamuna Flour Mills’ bid was rejected.
A trade watcher observed, “It was obvious that wheat prices wouldn’t be lower or even at the same price as in the last import tender, thanks to tight supplies and high freight rates. Yet the government chose to place the wheat import tender at this juncture.”
In case STC lets go of the opportunity to buy from PEC, the company can easily offload its wheat in the global market for a profit. “Either way, we will gain,” sources said.
The minimum price quoted by suppliers in the tender is 18% more than the average rate of $325.59 per tonne at which the government contracted 5.11-lakh-tonne wheat in the last tender. The bidders have quoted port-wise and month-wise quantities for arrival each month during October-December 2007.
The bids are valid till Monday, by when the government will decide how much to buy. The wheat is for supply both in shipments and containers during October-December when consumption in the north peaks. This is the first time the government has not specified the quantity it wants to buy.
STC had floated two import tenders earlier this year and had bought 5,11,000 tonnes of wheat at an average price of $325 per tonne in June against a tender for 1 million tonnes. This is the third tender floated by STC this year. The government has gone ahead with its import plan despite criticism that it purchased the wheat at higher price in the last round while cancelling the first.
Buying large quantities at globally-competitive prices from PEC ought to be a win-win for the country because the profit PEC makes on imported wheat deals would go back to the government coffers.
PEC has offered 50,000 tonnes of wheat at $385 per tonne, which is the same price quoted by MNC trading company Glencore. The two had the lowest bids in the tender which opened on Wednesday. Together, STC received bids worth 5.3 lakh tonnes of wheat from six companies in a price range of $385-434 per tonne for its global tender to import the food grain.
“We have managed to offer cheaper wheat than the MNCs because of our positions on Chicago Board of Trade. We have wheat cheaper than what Cargill is offering to STC because of the timing of our positions. Since we bought positions when wheat was cheaper, we have an immediate advantage. Once STC makes up its mind, we can easily offer much larger quantities,” said sources.
Wheat futures at the Chicago Board of Trade hit 11-year high of $7.41 a bushel this month. In all likelihood, the prices will continue their upward spiral and STC’s next tender some months later may well open at $450-a-tonne level.
Like all the bidders in the tender, PEC expects to make a profit on the wheat it sells to STC. It has also included a risk premium to cover delays in doing business. “We will be importing from a foreign supplier and the demurrage and hedge risks will be on our books. So, we have to take that into account like any other company,” they added.
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Judged purely on commercial grounds, there appears no reason why STC would not consider PEC’s bid in the same way as other bidders, which include Cargill, Toepher, Starcom and Ameropa. Glencore has offered to supply the maximum quantity of three lakh tonnes. Cargill India has offered to supply 80,000 tonnes while Toepher International 70,000 tonnes, Switzerland-based Ameropa 25,000 tonnes and Starcom 5,000 tonnes.
Another Indian firm Yamuna Flour Mills’ bid was rejected.
A trade watcher observed, “It was obvious that wheat prices wouldn’t be lower or even at the same price as in the last import tender, thanks to tight supplies and high freight rates. Yet the government chose to place the wheat import tender at this juncture.”
In case STC lets go of the opportunity to buy from PEC, the company can easily offload its wheat in the global market for a profit. “Either way, we will gain,” sources said.
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The minimum price quoted by suppliers in the tender is 18% more than the average rate of $325.59 per tonne at which the government contracted 5.11-lakh-tonne wheat in the last tender. The bidders have quoted port-wise and month-wise quantities for arrival each month during October-December 2007.
The bids are valid till Monday, by when the government will decide how much to buy. The wheat is for supply both in shipments and containers during October-December when consumption in the north peaks. This is the first time the government has not specified the quantity it wants to buy.
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STC had floated two import tenders earlier this year and had bought 5,11,000 tonnes of wheat at an average price of $325 per tonne in June against a tender for 1 million tonnes. This is the third tender floated by STC this year. The government has gone ahead with its import plan despite criticism that it purchased the wheat at higher price in the last round while cancelling the first.
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