India could import over one million tonnes (mt) of palm oil this month with the market being under pressure due to estimates of higher oilseeds production during the 2022-23 season starting in November and higher inventories in Malaysia, according to industry analysts and experts.
According to the US Department of Agriculture (USDA), oilseed production is estimated to be over 6 per cent higher next season at 646.59 million tonnes (mt) against 604.51 mt this season.
“Brazil, Uruguay and the US will have soyabean crops. Global ending stocks will be higher,” the USDA said in its “World Markets and Trade” report.
Weak fundamentals
“Palm oil looks to be under pressure due to high inventories in Malaysia and weak exports. Fundamentals are weak too,” said Abdul Hameed, Director-Sales, Manzoor Trading, Lahore in Pakistan.
“The outlook for edible oils is bearish with soyabean production set to rise by over 20 million tonnes. We will also have comparatively higher production in palm oil,” said BV Mehta, Executive Director, Solvent Extractors Association of India (SEA).
The USDA has projected soybean production at 390.99 mt next season against 355.69 mt this season. Palm kernel output is expected to be 20.59 mt against 20.03 mt, while rapeseed and cottonseed production are projected higher by at least 4 mt each.
“The spread between palm and soya is very attractive for big buyers in China. India may not show interest as its local oilseed production is good,” said Hameed.
$400/tonne cheaper
“Palm oil is at least $400 a tonne cheaper compared to soyabean oil. So there will more imports of the oil,” said Mehta.
According to SEA, the landed price of crude palm oil is $945 a tonne and that of RBD palmolein $950 against $1,350 for degummed soyabean oil. As per the Ministry of Agriculture, kharif oilseed production this year is estimated at 23.57 mt compared with 23.89 mt last year.
The USDA said the recent resumption of palm oil exports from Indonesia has “driven down global palm oil prices and increased the discount between palm and soyabean oil to record levels, offering some relief to global vegetable oil markets”.
In the new marketing year 2022/23, palm oil shipments are expected to rebound to 28.5 mt assuming no new export bans are imposed such as the one by Indonesia earlier this year.
Risk from India
Hameed said the edible oil market faced the risk of India imposing import duty to protect oilseed farmers. Mehta said lower prices in the global market were a concern and it would be good if the Centre can act quickly.
On Thursday, the weighted average price of soyabean across various agri terminal markets in the country is ₹4,624 a quintal against ₹4,880 a year ago. The minimum support price for the oilseed this year is ₹4,300 a quintal.
“The huge crop in Brazil and good harvest in US will ensure palm oil rules around 3,500 Malaysian ringgit (MYR). But prices are unlikely to drop below 3,000 MYR,” Hameed said.
This is in view of Indonesia’s stocks returning almost to normal even as it tries to export more to Pakistan and Bangladesh, which buy on a daily basis and cover short-term needs.
Indonesian stocks
“Indonesia has reduced its inventory a lot. It has lowered its export levy to $33 a tonne from $52 earlier. This is helping exports,” said Mehta. The cut in levy has been extended till the year-end as Jakarta tries to trim its inventories.
Fadhil Hasan, Head of Trade and Promotion, Indonesia Palm Oil Association (GAPKI), told businessline last month that Indonesia’s inventories that topped 7 mt in June are likely to drop to 5 mt by the year-end.
But Malaysia’s stocks at the end of September increased to 2.31 mt against 2.09 in August as its production increased by 2.5 per cent to 1.77 mt.
Hameed said weather could be another factor that could hold palm oil prices. For the third straight year, La Nina, which results in heavy rains in Asia and drought in Americas, has set in.
Biodiesel use
Higher use of palm oil for biodiesel, especially in Europe where the Ukraine War has resulted in natural gas shortage, could keep prices from falling sharply. Next season, 50 mt of palm oil is likely to be used for bio-diesel against 48 mt this season.
The current price trend will result in India importing another 1.2-1.3 mt of edible oil this month apart from the 1.59 mt it imported last month. Of this, palm oil accounted for 1.17 mt.
“This season, we could end up importing 14 mt of edible oil against earlier estimates of 12-13 mt as palm oil turned cheaper in the past few months,” Mehta said.