The Hindu Business Line : Veg oil prices threatening to spike

Processors and traders of vegetable oil are near unanimous in their view that it is only a matter of time before edible oil prices in the domestic market begin to climb steeply. Both domestic and international factors are sure to push the market to higher levels.

"As the domestic market is significantly integrated with the global market, we cannot remain insulated from global influences,'' said Mr A. Ramamurthy of AR international, a Hyderabad-based trade intermediary.

Policymakers have to take cognisance of the emerging market situation and take appropriate measure to rein-in price rise during the incoming festival season.

CPO price

Crude palm oil prices in Malaysia are on an upswing with rates threatening to breach 1,700 Malaysian ringgit (MYR) a tonne soon. The benchmark October CPO rate is 1,673 MYR a tonne, up 10 per cent in the last couple of weeks. Huge fund interest is said to be buoying CPO market.

While July production is likely to be lower by 4 per cent, exports have picked up by over 10 per cent. It is likely to reduce Malaysia's heavy CPO inventory of an estimated 1.65 million tonnes by 10 per cent to 1.5 mt.

Although the peak production season for palm oil usually is between April and September, in recent years it has continued beyond September. Demand, however, is expected to be robust not only from the world's largest importer China, but also from the bio-diesel segment.

More demand

A number of bio-diesel plants are expected to go on stream towards the end of this year and early 2007, creating huge additional demand for vegetable oil.

As palm oil is cheaper than soyabean oil, most bio-diesel plants would opt for palm oil pushing its price even further up.

Soyabean crop in the US is looking just about satisfactory (forecast at 81 mt versus 85 mt last year); but uncertainties relating to weather remain. August is a particularly notorious month for upsetting crop prospects and the market will be almost entirely weather-driven over the next 4-5 weeks.

India's pipeline stocks are rather limited and so is forward cover.

Port-based inventory is estimated at about 1.5 lakh tonnes. The existing mustard stock with government agency can provide very limited protection against an imminent price rise. The utilisation of mustard stock has been tardy and unimaginative.

Festival demand will soon start kicking in and the country may find itself having to organise large-scale imports at a high price. After wheat, sugar and pulses, it may well be the turn of edible oil to keep policymakers and politicians busy with price debates.

Kharif crop

The kharif 2006 oilseeds crop is not looking particularly great. Despite recent rainfall, on current reckoning, the total output could be 10 per cent lower than last year's kharif. Groundnut crop in particular looks less than promising.

A less than satisfactory domestic oilseeds crop and rising international prices would create ideal conditions for speculators to have a free run in the market.

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