The Hindu Business Line : Edible oil offtake up despite higher prices

DESPITE a massive surge in indigenous production, edible oil imports during the first four months of the current oil year 2003-04 are close to 12 lakh tonnes; indeed marginally higher than the volume (11.5 lt) imported during the same period last year when a widespread drought had devastated the oilseeds crop.

Current high prices of various edible oils have hardly dampened the propensity to consume more. Higher incomes this season following a rebound in agriculture overall is seen translating into higher consumption demand.

The benchmark groundnut oil (ready) is traded at around Rs 500 per 10 kg lot in Mumbai wholesale market. The premium oil has maintained this level, with small variations, for over four months now.

As per preliminary estimate made available to Business Line by Oilmandi.com, an industry portal, edible oil imports in February totalled 3.18 lt comprising mainly 1.6 lt of crude palm oil; 75,000 tonnes of refined palmolein; about 30,000 tonnes each of crude palmolein and degummed soyabean oil with the rest accounted for by crude palm kernel oil and sunflowerseed oil.

Recent increase in the tariff value for imported soyabean oil to $710 a tonne is expected to be positive for palm oil, which is sold at a discount of about $140 a tonne to soya oil. At the same time, latest reports suggest a further scale-down of the Brazilian soyabean crop to 54 million tonnes (mt.) (from the initial estimate of 61 mt, output was brought down to 57 mt.). This would continue to keep the soya complex on the boil.

Palm oil is deriving strength primarily from the soyabean complex. Hedge funds are reportedly holding long positions in soyabean and may not allow the market to decline so easily. By the same token, should funds decide to liquidate their long positions (for whatever reason), soyabean oil prices would crash; and palm prices could crash even more rapidly. However, there are no signs at present of anything like that happening.

Some experts believe, because the market is over-heated, the time for correction may appear sooner than expected. It is well understood in the commodity markets, what goes up rapidly can come equally, if not more, rapidly. So, building long positions could be risky.

The current high prices are expected to encourage considerable expansion in area in the next sowing season beginning May/June, in all the major origins, including India and the US. While weather concerns, if any, in even any one of the major origins US, China and India could send the market into a tailspin, normal weather and satisfactory crop production prospects would put downward pressure on price from mid-September onwards when the crop size would crystallise.

It is widely believed that India would need to import no less than 30 lt over the next eight months till October to meet consumer demand and build reasonable carry-over stocks. From April/May onwards, it would clearly be a weather-driven market as far as vegetable oils are concerned.