The Hindu Business Line : Edible oils track rise in crude oil prices

SLIPPING ACREAGE: Farm workers tending a field in which groundnut is being cultivated near Palani in Tamil Nadu. Groundnut production this oil year (November 2006-October 2007) is projected to decline to 53.5 lakh tonnes from 62.5 lakh tonnes last year as acreage under the crop has slipped. - K.K. Mustafah

Mumbai March 29 Edible oil prices gained in the international market as crude oil prices moved higher. In the past two weeks, prices of both palm and soy oils have climbed by almost $25 to $30 per tonne in the international market. Non-food use of edible oils as raw material for bio-diesel, the new market for palm and soya oils, is keeping the anticipated demand strong.

Edible oil prices were expected to be driven mainly by the movement in prices of crude oil, demand from the consumption markets (India, China and EU) and the bio-diesel economics, said Mr Pradip Desai, Managing Director, Palmtrade Services Pvt Ltd.

Palm prices have been climbing at a faster pace compared to soya oil.

In the international market, crude palm oil was quoted at $597 per tonne f.o.b. (free on board) higher than soya oil prices at $554 per tonne f.o.b..

Landed cost of palm oil imports as on Wednesday was $630 per tonne c&f (cost & freight), while soya oil was quoted at $685 c&f, narrowing down the parity between the two competitors.

Malaysian prices

Domestic RBD palmolein prices are ruling at Rs 444 per 10 kg, while refined soya oil prices are a tad higher at Rs 451 per 10 kg. Palm prices have been holding up for the past six months even with average exports, keeping in view good anticipated demand.

Malaysians are determined to take palm prices to Malaysian ringgit (MYR) 2,400 per tonne (currently MYR 2,045 ), said Mr R. Ramamoorthy of A.R. International.

Fairly new demand from US imports was around 2 lakh tonnes of palm oil every month due to problems over trans fatty acid in soya oil and for energy purposes too, said Mr Ramamoorthy.

While demand for bio-diesel remains, viability of production with high palm oil prices is a question, he remarked. Palm production is not expected to grow phenomenally, he added.

Acreage shift

On the other hand, South American (Argentina and Brazil) harvest of soy crop was weighing on the prices of soya oil, keeping them from moving higher compared to the palm prices, said Mr Desai. With the strong boost in ethanol demand, there are expectations of shift in the acreage from soya to corn.

Market has already discounted the acreage shift to the extent of 6-8 per cent, said Mr Desai adding that in case of a higher percentage shift of 10-12 per cent it will be a bullish factor.

Palm and soya oil prices were at a peak for the current oil year at Rs 460 per 10 kg in January 2007.

Indian imports till now have been moderate at about 10 lakh tonnes during the first four months of the current oil year out of the total demand of 55 lakh tonnes, said Mr Ramamoorthy.

"We have to import the balance 45 lakh tonnes in the remaining months," he added.