The Hindu Business Line : Vegoils may trade in ranges over next 8 weeks

Stark demand and supply fundamentals are at last catching up with the global vegetable oil market. Despite several months of chorus and hype about huge diversion of vegetable oil for bio-diesel purposes, market has not moved up to any notable extent.

If anything, prices are beginning to weaken with imminent supplies and slowing demand. The market continues to be guided by excellent oilseeds production prospects in South America (soyabean) and India (rapeseed/mustard) as well as rising inventory of crude palm oil in Malaysia (over 1.6 million tonnes).

No wonder, CPO rates are range-bound and stubbornly stuck to around Ringgit Malaysia (RM) 1,450 a tonne at the origin.

Under normal circumstances, prices should have moved lower than this, but market participants are believed to be keen not to let that happen.

India's contribution

Soya oil market is decidedly weak with supplies beginning to come in from South America.

India's contribution to the sentiment cannot be underestimated. A large summer crop of oilseeds under harvest, huge inventory of last season's crop and slowing imports since last November have surely set the tone for the market.

Malaysian minister's recent visit to India for strengthening bilateral trade relations is unlikely to yield any positive result for Malaysia, in the short-run, in respect of customs duty on CPO. In any case, the Government of India is in no mood to lower tariff barriers at this point of time, given domestic compulsions.

Draft rules for GM foods

The latest move to support domestic producers is the notification suggesting draft rules for labelling of genetically modified (GM) food products.

Soyabean oil imports would come under the scanner. While it may take nearly three months (including two months for receiving and processing suggestions and comments), if the labelling proposal is finally notified, it will support domestic prices for some time.

The draft rules are, however, expected to attract a lot of opposition and one should not be surprised if overseas interests scuttle the move. There are also practical difficulties in implementing the labelling stipulation.

So, the vegetable oil market — both international and internal — is likely to be range-bound over the next eight weeks or so or until some decisive event to break the stability occurs.

Monsoon onset critical

The month of May is critical for the market. Planting intentions in the US and forecast of southwest monsoon in India will be watched with great interest.

Onset of monsoon and oilseed prices at the time of planting in India would be of immense interest. The market can change direction depending on how things pan out in May and June.

The ideal time for the government to review the customs duty structure is sometime in July after oilseed plantings are largely complete. Much would depend on the movement of international prices after June. Several newly established bio-diesel plants are likely to go on stream, creating fresh additional demand for vegetable oil in the second half of the year.