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Tightening supplies spur vegoil price rise

G. Chandrashekhar

MUMBAI, July 17

PROSPECTS of global vegetable oil supplies tightening in 2001-02 have helped the market shrug off the 30-month bear hug and break upwards. It is expected that consumption next year will outpace production, leading to stock depletion. The market has taken cognisance of this expectation.

China has to an extent been instrumental in moving the market by releasing an import quota a few days ago. A rush of Indian purchases has also added to the scramble. Interestingly, the rapid spurt in international prices - and reflected in the domestic m arket - has caught many players here unawares, even as some are hoping the market would correct itself down on the basis of perceived satisfactory fundamentals. The possibility of a correction soon appears remote given that the market moves on the basis of sentiment.

Globally, production of high-oil-content seeds -- rapeseed, sunflowerseed -- is perceptibly slowing and will weaken gains in global vegetable oil output next year. This is despite the fact that there would be an overall increase in global oilseeds output next year, helped primarily by a forecast 5 mt rise in soyabean output and 2.5 mt increase in cottonseed, both low-oil-content seeds.

On the other hand, for 2001-02, output of rapeseed is forecast at 37.5 million tonnes, unchanged from previous year and sharply down from 42.3 mt of 1999-2000. Similarly, sunseed output is expected to dip for the second year in a row to 22 mt, from 23 m t in 2000-01 and a high 27.2 mt in the year earlier.

In addition, world palm oil production in 2001-02 is projected up just 3 per cent to 24.7 mt. By comparison, palm oil output in 2000-01 expanded at an estimated 10 per cent to 23.9 mt from 21.7 mt in 1999-2000.

The rate of increase in new oil-palm area in South-East Asia has slowed, while reduced fertiliser application and a typical downturn in production cycle are likely to curb yields by next year. According to reports, Malaysian palm oil output is expected t o slow to 12.6 mt in 2001-02 from 12.3 mt for the current season. Indonesian palm oil production is forecast up from 7.5 mt to 7.8 mt.

Export demand is expected to remain brisk with major importers China and India forced to continue to import edible oils to meet domestic demand. Like vegetable oil stocks in USA and EU, palm oil stocks in Malaysia and Indonesia have peaked and should gra dually decline next year. At close to 8 mt, global stocks of vegetable oils are still comparatively large this year, but the 2001-02 carryover will likely drop by about 6 per cent.

Recently, China issued an import quota of 6 lakh tonnes valid for the second half of the current year, with the possibility of additional direct transactions by the government. For the first half of the year, a palm oil import quota of 7 lakh tonnes was released in January. Given tightening world rapeseed supplies and high prices, palm oil could be favourably priced for Chinese importers. China's aggregate palm oil imports in 2001-02 will rise to 1.8 mt from 1.7 mt in 2000-01 and 1.2 mt a year earlier.

As for India, there is expectation that import requirement which has been rising aggressively may slowdown next year following considerably improved prospects for domestic oilseeds crop in the wake of satisfactory monsoon rains so far. Already, imported sunoil and rapeseed oil have priced themselves out of the Indian market because of high cost and high duty. The market is now dominated by low-duty (45 per cent basic) degummed soyabean oil and high-duty refined palmolein (85 per cent basic) and crude p alm oil (75 per cent basic).

Currently, the indicative price for refined palmolein is $320 a tonne and for crude palm oil $290 a tonne, both free-on-board Malaysia (and both up $70 a tonne in last three weeks). Degummed soyabean oil is offered at $375 a tonne and crude sunflower oil $470 a tonne, both f.o.b Argentina (an increase of $80-90 a tonne since end-June).

In the first eight months of the current oil year, aggregate arrivals into the country had logged 29.6 lakh tonnes. Over the next four months till October, an additional 20 lakh tonnes will be imported, primarily to meet the festival demand from mid-Augu st running till mid-November. This would take the aggregate imports during the year to 50 lakh tonnes, up from 45 lakh tonnes in 1999-2000.

However, once the kharif oilseeds crop prospects crystallise by mid-September, the sentiment could undergo a change. Early sown crop will be harvested by early October. Two more rounds of rains are necessary for the healthy development of oilseeds, parti cularly groundnut and soyabean.