The Hindu Business Line : `Higher vegoil rates dampening demand for food, biodiesel'

Jakarta (Indonesia) May 2 Global stock levels will drive vegetable oil prices and currently, the situation is highly constructive to prices, said Dr James Fry of UK-based consultancy LMC International.

He was addressing over 200 delegates participating in the Globoil International Seminar and Exhibition here on Tuesday.

While fuel prices do impact vegoil prices and demand, current high rates of vegoils are beginning to dampen demand for both food and biodiesel, the expert said, adding that unless South-East Asia has lower output, crude palm oil prices will be set by price-sensitive bio-diesel demand and blending laws in the US.

EU price-sensitive

Assuming crude prices stay at $60 a barrel, demand growth, especially in the European Union would be sensitive to prices, Dr Fry said.

For the first two million tonnes (mt) of palm bio-diesel, EU may pay a high price of up to $1,200 a tonne for crude palm oil. However, the next 4-6 mt, EU would be willing to pay CPO equivalent of $700 a tonne.

Asserting that EU demand was very sensitive to prices, he said there was the danger demand will vanish at vegoil prices above $675/tonne.

As demand is turning price sensitive, palm methyl esters prices will have to align more closely with prices of other methyl esters as well as fossil fuel prices.

US Blending law

The US blending law promotes bio-diesel by granting an incentive of $1 per gallon of bio-diesel production. Instead of being used in the US, the commodity is exported out of the US to EU.

How long the incentive would be available to palm-based bio-diesel (US does not produce palm oil) would decide the quantum of US import of crude palm oil, Dr Fry said.

Earlier, Mr Derom Bangun, Executive Chairman of GAPKI (Indonesian palm oil producers association), said the Indonesian Government was seriously concerned about rising domestic prices of edible oil. The Government may impose restrictions on CPO exports, if domestic prices do not soften soon, he warned.

Several delegates felt that any precipitate action by Indonesia may impact palm oil market.

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