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South Asia vegetable oil demand firm, imports seen curbed

* Traders said Pakistan’s edible oil purchases could rise only marginally to 1.8 million tonnes in 2007, from 1.6 million tonnes a year ago, despite an expanding economy and rising consumption

NEW DELHI: South Asia’s demand for vegetable oils is expected to surge as much as 10 percent in the new oil year and outstrip production, but rising global prices may crimp imports as poor consumers switch to cheaper home-grown oils.

Analysts said India’s demand for oils in the oil year beginning October could grow 10 percent, while neighbouring Bangladesh and Pakistan may witness a 5-10 percent jump.

But they added that high prices of palm and soy oils will be a deterrent and may force low-end consumers in these developing countries to switch to cheaper domestic oils, such as cottonseed. “High prices of oils are not sustainable in South Asia and will definitely affect demand,” said Shardul Sharma, an analyst with Sharekhan Commodities, a brokerage.

“A 25-30 percent price increase over the last year has led to a five percent fall in demand (for imported oils).”

Despite firm prices, import demand in Asia has been high in recent months as buyers in the Middle East and China have locked in supplies for the Muslim holy month of Ramadan and the Chinese mid-Autumn festival, both due in September.

But analysts said the scenario could be different in South Asia, where about a quarter of the population earns less than a dollar a day and high prices would limit buying. Soyoil prices on the Chicago Board of Trade hit 23-year highs early this year, benefiting from surging demand.

Palm oil futures on the Bursa Malaysia Derivatives Exchange hit an historic high of 2,764 ringgit ($799) a tonne in early June though have dropped 13 percent since then.

But they are still 26 percent up this year and well within the sight of June’s figure, helped by soaring demand for palm oil from sectors, such as manufactured foods and bio-diesel.

Massive bio-diesel manufacturing capacities have been installed the world over. The United States is producing the alternative fuel from soybean oil, the European Union from rapeseed oil, and Malaysia and Indonesia from palm oil.

Duty cuts: Leading analyst Dorab Mistry told a conference in Singapore this month that vegetable oil imports by India in the year to October 2007 are likely to be 600,000 tonnes lower from earlier estimates at around 5.8 million tonnes due to high prices.

India, the world’s second-largest edible oil importer after China, mainly buys palm oil from Malaysia and Indonesia and soy oil from Brazil and Argentina.

In the last six months, India has on several occasions revised downwards import duties on palm oils to fight rising prices, but with little success. “We fear that we may not be able to control the landed cost of imported oils even by bringing the duty to zero level due to mushrooming growth in bio-diesel capacities,” said AR Sharma, president of the Solvent Extractors’ Association of India.

Apart from the size of domestic crops in India, Pakistan and Bangladesh, the crucial factor determining demand will be prices of palm and soy oils, said G. Chandrasekhar, commodities editor at the Hindu Business Line newspaper.

“If palm or soy prices remain high, these countries will be forced to import less and high prices look inevitable because of usage for bio-diesel,” he said.

Industry officials said prospects of a good oilseed harvest in the winter due to well spread rains and greater acreage could also trim Indian vegetable oil imports in the new season by about 300,000 tonnes. “Prices of soy and palm will be steady-to-firm because soy, sunflower and rapeseed crops will be less and there will be some reduction in demand due to high prices,” said Govindhbhai Patel, an oils trader in groundnut-growing Gujarat state.

But BV Mehta, an official of the Solvent Extractors’ Association, said that despite a higher winter crop, dependence on imports would be inevitable as domestic soybean, the key oilseed, yields only 18 percent oils. Sharma said India could contain imports to reasonable levels in the current season because of good carryover stocks of rapeseed but these would be exhausted in the new season.

Traders said Pakistan’s edible oil purchases could rise only marginally to 1.8 million tonnes in 2007, from 1.6 million tonnes a year ago, despite an expanding economy and rising consumption.

In neighbouring Bangladesh, consumers have started feeling the pinch of high prices of essential commodities, including oils, which have mainly been pushed up by soaring prices in international markets. reuters

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