The Hindu Business Line : Firm prices of edible oil to continue

DESPITE the harvest of record oilseeds crop worldwide in 2003-04 (335 million tonnes versus 330 mt in 2002-03) and record vegetable oil production (101 mt versus 95 mt), the global market has continued to remain on the boil because of perceived supply uncertainties, especially in South America.

Continually pared down over the last two months, the Brazilian soyabean crop is now estimated at 54 mt, down from the initial 61 mt. While world consumption of major vegetable oils for the year is estimated at the same level as production, ending stocks at 6.4 mt are expected to be one of the lowest in recent years. In this seemingly tightening supply scenario, funds have played a part to keep their hold on prices.

Interestingly, the palm complex has remained indifferent to the volatile movements of soyabean oil over the past several weeks. Crude palm oil prices have moved in the narrow RM 1,850-1,950 a tonne range, thereby further strengthening the attractiveness of palm over soya, especially for price sensitive markets. The price behaviour has defied forecasts made early March at Kuala Lumpur.

The domestic vegetable oil market reflects the general firmness in the international market. Despite higher indigenous production, prices have been strong, supported by political uncertainty in the form of general elections and consumption growth.

However, because of price disparity and sluggish offtake of imported oils, India has kept off the edible oil import market for several weeks now. Edible oil arrivals in April were low at an estimated 2.3 lakh tonnes.

In the first six months (November 2003 to April 2004) of the current oil year, edible oil imports aggregated 18.2 lakh tonnes.

As the global market has taken cognisance of all supply factors for 2003-04, from now on, eyes will be trained on the supply prospects for the new year beginning October 2004 for which planting should commence now.

Peak production season for palm oil has begun in April and is expected to run through September, helping augment supplies. The period also coincides with oilseeds planting in three of world's major origins - US, China and India. Weather is expected to be a significant driver of the market over the next 4-5 months.

While high prices are expected to encourage area expansion for oilseeds around the world, any weather related scare in the coming months has the potential to create a price spike given the delicate balance between demand and supply this season.

India's imports would peak during July-October months to meet manifold rise in demand for the festival season. It is possible India's imports in the next six months (May-October) would aggregate 24-26 lakh tonnes, taking the annual total to 42-44 lakh tonnes. Of this, 20 lakh tonnes may arrive in the last four months. Palm would of course be the major beneficiary.

A belief that supplies in India are tightening is gaining ground. Unless import requirement for June-July-August are covered in time, prices could escalate, a situation unpalatable to any Government. Edible oil consumption during the summer months (May-July) is seasonally low. Players have to be constantly on the lookout for price signals. Many have been wondering whether customs duty on edible oil would be reduced. No such decision is expected till the new Government assumes office. Similarly, declaration of minimum support price for Kharif 2004 oilseeds would also have to wait for a few more days.

There are indications that the policymakers may be open to reducing customs duty on oilseed imports. It is premature to hazard a guess on the extent of such reduction and its commercial implications. The matter needs to be watched closely for its controversial ramifications.