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G. Chandrashekhar

MUMBAI, Aug. 2

IS a tightness in castor oil supplies emerging? Outlook for the coming months appears positive for castor oil, which has been languishing for some time in the wake of slowdown in demand, both overseas and domestic.

What is of interest is the fact that in the first six months of the current calendar year, castor oil export shipments totalled just about 95,500 tonnes, significantly down from about 1,15,000-1,20,000 tonnes recorded for the same period each of last three years.

Obviously, the key to price recovery is the emergence of export demand for Indian castor oil. Will overseas demand pick up before the year ends? Some leading players in the trade assert it will.

It is generally believed that being a versatile industrial oil with varied applications, demand for castor oil is price inelastic. There is invariably a minimum quantity of this commodity that is consumed annually by advanced countries irrespective of price.

Overall global economic slowdown, impact of 9/11 on the US economy (which in turn impacted the world economic recovery) and recent gyrations of the equity markets in developed countries have no doubt lent some uncertainty to business prospects.

This has discouraged India's traditional buyers and users of castor oil from building inventory. Most users have been buying on hand-to-mouth basis, which has kept Indian prices relatively low and stable for last several months, despite the known volatility of the commodity and lower domestic production in 2001-02.

It is not inconceivable that the cozy supply and price situation for overseas buyers could undergo a rapid change in the coming months on emergence of demand. After all, industrial users will have to source their annual requirement and replenish diminishing inventory.

Another important factor that could impact domestic castor oil prices is the drought situation, which is sure to affect oilseeds output in general, and groundnut output in particular.

A decline in groundnut oil production coupled with a sharp difference between groundnut oil and castor oil prices is a sure recipe for a major spurt in the latter. It is common knowledge that castor oil is the favourite adulterant for groundnut oil; but its use diminished over the last two years because of easy availability of cheaper imported substitutes like palmolein. According to Mr Kishore Tanna of Jamnadas Madhavji International Ltd, a major exporter of castor oil, total oil supply during 2002 will be 3.1 lakh tonnes. This comprises 28,400 tonnes opening stock, 63,000 tonnes crushed out of last year's carry-over seeds (1.5 lt seeds at 42 per cent oil recovery) and 2.1 lt of oil crushed out of current year's seed output of 5 lt.

On the demand side, Mr Tanna has placed domestic consumption at 50,000 tonnes, use for derivatives at 40,000 tonnes, export in small pack (drums and flexipacks) at 20,000 tonnes and export of 6,000 tonnes in form of seed (equivalent to 14,000 tonnes).

As for castor oil export in bulk, if the total shipment is restricted to 1.94 lt in 2002, only then the supply-demand situation will be strictly in balance. This would also mean all seeds are crushed and there would be no opening stock for next year. Such a situation will be bullish for oil.

However, the actual export during the year could touch and possibly exceed two lakh tonnes (indeed, each of last three years' exports exceeded two lakh tonnes). Only 95,500 tonnes were shipped during January-June 2002, with potential of further shipment of over one lakh tonnes. Export demand and rise in domestic consumption are the key factors to watch.

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Castor oil outlook turning positive on tight supplies

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