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G. Chandrashekhar

Kuala Lumpur , Oct. 3

THANKS to the emergence of biofuel demand for vegetable oils, the market for the latter has moved into a hitherto unchartered territory.

Over a million tonnes of extra demand is likely to be created this coming year simply as a result of new biofuel outlets, said Dr James Fry of London-based consultancy LMC International.

Presenting his paper on the global economy and outlook for palm and soya oils at PIPOC 2005 organised by the Malaysian Palm Oil Board, Dr Fry said the decline in world oil demand in response to the macro-economic effects of high petroleum prices would be substantially less than would have been the case in the past because of the emergence of biofuel demand.

The European Union (EU) has been a leader in developing biofuel from vegetable oils. Rapeseed is increasingly grown for biodiesel. Over 2.5 million tonnes of rapeseed oil will go towards biodiesel in calendar 2005, and it may take over half the total EU rapeseed harvest of 2005-06, said Dr Fry adding that the US' biodiesel use of soyaoil in 2005-06 could reach one million tonnes.

Interestingly, direct burning of oil in the EU as fuel is said to be approaching a million tonnes of palm oil (in the form of stearine and palm fatty acid distillate), the expert said.

Suggesting that India was at the heart of the world vegetable oil market, Dr Fry said the differential import tariffs adopted by India influences the price relatives of palm and soyabean oils.

Although China is the world's largest importer of vegetable oils, India plays a pivotal role in the market because the warm climate and scope for blended oils as well as the importance of vanaspati means that India can switch more easily between soya and palm oils than China and the EU.

"This flexibility has transformed the world market vegetable oil price differential," said Dr Fry. Soyabean oil and palm oil have a price differential of approximately $100 per tonne. The former is more expensive.

On price outlook, Dr Fry said in the next crop year, growth in world oil output and demand will slow, but production will slow faster than consumption. As a result, total soya and palm oil stocks will fall. However, in the next few months, Indonesia's greater willingness to accept lower prices than Malaysia will keep the latter's stocks fairly high and hold down crude palm oil prices.

Specifically, from the first quarter of 2006, prices should begin to rise. After falling to $525 a tonne in EU, soyabean oil is expected to be almost $580 a tonne by mid-2006. Crude palm oil is forecast to settle down to 1,320 Malaysian ringgit (MYR) a tonne by year-end, but rise to MYR 1,480 by the middle of next year.

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