The Hindu Business Line : Vegoil prices on the decline; consumers to benefit

Mumbai, Aug 1 Pressured by a host of factors including downward movement in international prices, slowing offtake in the domestic market and a slew of measures initiated by the Government in recent months, players in the vegetable oil market are readying themselves to face a period of declining prices. For the first time after the Government allowed crude oils at zero-duty, both crude palm oil and degummed soyabean oil are being traded at close to import parity prices. If anything, there is the possibility of prices moving below the current levels. At $1,030 a tonne cif (cost, insurance and freight), the parity price for CPO is Rs 445 / 10 kg trading lot.

Prior to zero-duty regime, prices had reached as high as Rs 525/10 kg. For degum soyabean oil ($1,335/tonne cif), the domestic parity price is Rs 575/10 kg. There has been a drop of about Rs 100 from the high levels seen three months ago.

Market on the decline

According to a trade intermediary, some large refineries are actually selling the oil at even below the parity level so as to liquidate accumulated stocks, fearing a further setback to prices. Forward prices of rapeseed/mustard are also on the decline. Stocks of this summer oilseed are not large; yet, the market is on the decline in sympathy with other oilseeds and oils. Markets are known to spring surprises. Several traders and small refiners who had gone ‘long’ in anticipation of further rise in prices based on bullish forecasts of some analysts are in trouble.

Subject to normal weather conditions from now on in major origins, there is likelihood of a further downward correction in the market which had got overheated with a heady combination of steadily spiking crude oil, unabated biodiesel demand and large influx of speculative capital. Clearly, the global vegetable oil market is returning to more sensible levels. It had to because the fundamentals never justified a big rise in crude palm oil prices to $1,200 a tonne or soyabean oil to $1,400 a tonne. In the global market, there has been a sell-off. CPO stocks in Malaysia are building steadily and are expected to reach record levels of 2.4 million tonnes.

Palm oil production growth is robust, especially in Indonesia. Weather conditions across the world generally, and especially in the US, is favourable for a large harvest of oilseeds crops in the northern hemisphere. Additionally, crude prices have fallen from the record highs; and stiff resistance is building against mandated biofuels usage. Soyabean from South America should now be available more liberally. So, supply side factors have strongly influenced the sentiment.

The joker in the pack could be India. Key oilseed growing States (Maharashtra, Andhra Pradesh, Karnataka and Gujarat) have been threatened by varying levels of moisture-stress. Rains in the last two days may surely bring some relief. But acreage numbers are far from inspiring and yields could be suspect.

In a welcome move, the Government has announced subsidised sale of refined oil through the public distribution system. It will benefit consumers during the festival season. If New Delhi wants a genuine dent in high cooking oil prices, it should permit refined oil imports too at zero-duty. A large inflow of refined oils will have an immediate salutary effect on prices, curb speculation and bring relief to consumers. Indeed, the Government can even save on the subsidy amount.

Politically too, it should be expedient because elections to several States and even General Elections are round the corner. The kharif 2008 oilseed crop is shaping up to be less-than-satisfactory, and far below the output of kharif 2007. Instead of indulging in fire-fighting, the Centre must initiate a tariff policy that will meet consumer needs over the next several months.

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