REFILE-Physical sugar-Rally boosts incentives for Indian exports.

A sugar price rally and a weak rupee have further increased the incentives for Indian exports to markets such as Iran, traders said on Tuesday.

Iranian enquiries for Indian sugars have picked up, as the jump in sugar prices to two-month highs and the soft rupee, benefited prospects for exports of bulk Indian sugars.

"As the sugar market moves higher, there is more of an opportunity for Indian low-quality whites," one London-based trader said.

"The Indians will look at export parity based on selling low quality whites to the domestic market or the export market."

Food is not targeted under Western sanctions aimed at deterring Iran's disputed nuclear programme, but the country has paid high prices for grain and sugar to work around a freeze on financial transactions due to the measures.

Tehran, however, has become increasingly adept at sidestepping the restrictions, creating alternative payment systems to secure vital supplies.

"The pricing at the moment makes the raws which are actually Indian low quality whites competitive and it's much cheaper than Brazilian raws," a sugar trade source said.

"There is no reason to assume that the sugars will be turned down by Iran, which can then refine it to meet their requirements," the source said, referring to the higher quality refined sugar that Iran normally consumes.

ICE front-month raw sugar futures touched a two-month peak of 21.96 cents a lb on June 28, underpinned by a shortage of near-term supplies after heavy rainfall delayed harvesting in top producer Brazil and contributed to a big buildup of vessels at loading ports.

ICE front-month raw sugar futures stood at 21.78 cents, up 0.38 cent or 1.8 percent, on Tuesday afternoon.

Traders said the current monsoon period in India, the world's number 2 producer, was likely to complicate export shipments, but if prices favoured exporting Indian sugars, solutions would be found, including the use of containers.

They said Iran, which typically imports raws from Brazil, had not procured as much sugar as initially envisaged, suggesting the country was likely to come back for more soon.

"In terms of bulk raws, they didn't do as much business as we thought they would," said one trade source.

A trade source estimated 163,000 tonnes of bulk raw sugar were to be shipped to Iran in July, after 71,000 tonnes in June.

VESSEL EN ROUTE TO IRAN

A vessel called Tycoon, booked by an international trade house, was due to load around 28,000 tonnes of sugar at Santos port in Brazil, having previously taken some 35,000 tonnes in Paranagua, and was due to depart in the next few days for Bandar Imam Khomeini port in Iran, trade sources said.

Bandar Imam Khomeini is one of Iran's main general cargo terminals and is typically used by state commodities buyer the Government Trading Corporation (GTC) of Iran, whose purchases include sugar and grain.

GTC is expected to play a bigger role in sugar imports in coming months as the Islamic Republic tries to secure stocks to avoid unrest.

It was not immediately clear if drier weather in Brazil would serve to diminish the lineup of sugar vessels, as the harvest was expected to gain momentum.

However, a senior shipping source in Brazil said the present lineup of vessels at sugar ports was not extraordinary for this time of year.

Source : reuters.com