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Mumbai, July 9

Mumbai, July 9 Ahead of the US Department of Agriculture supply/demand report scheduled for July 11, and looking at the slowly changing market fundamentals, widespread belief is developing that the vegetable oil market is poised to face a decent correction soon.

The downside risk is likely to be precipitated by improving conditions for the soyabean crop in the US, supplies from South America and burgeoning stocks of palm oil with Malaysia in the wake of strong production season. In sympathy with soyabean oil, canola oil prices too have begun to weaken.

The crop scare rally may be in place for soyabean and meal, but support for oil is removed, according to a leading analyst.

There are also apprehensions about possible backlash against use of vegetable oils as biofuel (biodiesel). As for palm oil, going purely by market fundamentals, a correction has been long overdue.

Strong crude market ($ 140 a barrel and around) has provided an artificial prop to the palm market. Indeed, strong palm oil inventory, rising production month-on-month and sluggish offtake may serve to bring soyabean oil prices down, as the two markets are known to feed on each other. Subject to normal weather in the US, China, India and other places where oilseed crops are shaping up, there is the strong possibility of a rebound in global oilseeds and oils production in 2008-09. The current differential between palm and soya oils is about $ 200 a tonne with palm selling at a discount.

Given developments in the soya complex, there is strong likelihood that the differential will narrow in the coming days, with soyaoil moving down, rather palm move up. In the event, palm would be further pressured down. An interesting cat-and-muse game continues to develop in the vegetable oil market.

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