Palm and Vegetable Oil Demand Softer than Expected in 2012

Demand for palm oil in particular, and for vegetable oils in general has been softer than expected in 2012. Demand was hurt by slower growth in the production of biofuels from vegetable oils and a slowdown in economic growth in the developing countries amid high prices.

Palm oil is poised to tumble to a two-year low as inventories surge in Indonesia and Malaysia, futures in Malaysia, the global benchmark, may slump to between 2,600 ringgit ($852) and 2,700 ringgit a metric ton by December. Forecast from the 2,900 ringgit to 3,300 ringgit made on Sept. 6. The commodity last traded below 2,600 ringgit in September 2010. With the recent sell-off, the probability of prices falling to 2,300 ringgit has risen to 50 percent from 20 percent in June.

Vegetable-oil imports climbed 19 percent to 8.16 million tons between November and August, according to the Solvent Extractors’ Association of India. Stockpiles, including those at ports and in the pipeline, totaled 1.55 million tons as of Sept. 1, it said on Sept. 14.

Futures have fallen 20 percent since the end of March and are heading for a second straight quarterly decline on concern that a pick-up in production will drive stockpiles in Malaysia and Indonesia to records. The December-delivery contract fell 2 percent to 2,763 ringgit a ton on the Malaysia Derivatives Exchange on Sept. 21, the lowest price at close for the most- active contract since October 2010.

Global vegetable-oil supplies will increase by 3.05 million tons in 2012-2013, while demand may expand by 3.5 million tons. Soybeans may reach a record $20 a bushel in December or January and drop with the swelling of harvests in Brazil and Argentina.

Palm oil, used in everything from candy to biofuels, has fallen 8.5 percent this month as demand slowed from importers including China and the European Union, and stockpiles surged because of a seasonal increase in production. Falling prices may reduce revenues for producers including Sime Darby Bhd (SIME) and IOI Corp. and help cap increases in global food costs.

Stockpiles in Malaysia will continue to expand in October, November and December and may reach as high as 3 million tons by January. Inventories in Indonesia have hovered between 3.5 million tons and 4 million tons since 2010 as against popular estimates of 1.5 million tons to 2 million tons, he said. Production in Indonesia may climb to 27.5 million tons in 2012, higher than the 27 million tons estimated on Sept. 6, while Malaysia’s output may be 18 million tons this year, less than the 18.2 million tons forecast previously.

Prices may drop to 2,500 ringgit a ton by December because of rising stockpiles. There is a large potential for prices to go down substantially. The gap between the two oils, which jumped to a four-year high this month, widened to $304.67 a ton on Sept. 21. The record is $493.76 in August 2008. Soybean oil and palm oil are used in foods and fuels.

Cooking oil imports by India, the largest palm oil buyer, may climb to a record 10 million tons in the oil year ending Oct. 31 on lower domestic oilseed output. Stockpiles in India at the end of October will be higher than in previous years.

Vegetable Oil Shortfall while Consumption Rising in India

India vegetable oil shortfall is expected to be around 10%, while the consumption has been rising around 3-4% every year. Due to lower production forecast for rabi crop amid rising consumption, price of vegetable oil in India may move high in 2012. India imports vegetable oil mainly from Indonesia, Malaysia and some others.

Around 9.3 million tons of vegetable oil is likely to be imported by the country to meet the growing demand. Last year, the India had imported 8.37 million tons.

According to the Solvent Extractors’ Association (SEA), delayed sowing of the rabi oilseeds coupled with bad weather conditions.

India's overall production of oilseed for 2011-12 is expected to be around 24.25 million tons.

Meanwhile, India's oilseed production for MY 2011/12 (Oct-Sep) is forecast higher at 35.6 million tons.

The Global oilseed trade for 2011-12 is projected at 110.5 million tons, down 2.6 million mainly reflecting reduced soybean export projections for Brazil, Argentina, and Paraguay.

Other major changes around the globe are higher rapeseed production for China and Russia, lower rapeseed and sunflowerseed production for Kazakhstan, and higher cottonseed production for Pakistan.

FAO: Oil Commodities Price High till 2011

Food and Agriculture Organisation said prices for oilseeds, meals and vegetable oils are to continue stay high through next year.

In a report, the FAO said competition from food groups and biofuels plants limited production drives supplies to a critically low level.

However, the report added that the squeeze would be particularly felt in oils, following weak harvests this year of rapeseed and sunflowers, which offer higher oil content than soybeans, but where yields have been hurt by poor weather in Europe and, in particular, the former Soviet Union.

"The projected year-on-year supply growth remains weak in historic terms," the FAO said, forecasting production rising by 1.5% this year.

Demand growth, however, will accelerate to 4.7%, as "economic growth boosts average per [head] use among developing countries", even before factoring in growing demand in biofuels plants.

In Brazil, where vegetable oil use will jump by 15%, about 40% of product will be used by biofuels plants. In Argentina, where consumption will rocket by nearly 40%, the proportion of oil used for making biodiesel is about 60%.

"Overall, increasingly ambitious biodiesel production and consumption targets are likely to affect the availability and trade of vegetable oils for food and other traditional uses," the FAO said.

Stocks-to-use ratios - a key measure of the readiness of supplies, and therefore of the prices that importers are likely to have to pay ? should drop for both meals and oils, "with the oils ratio reaching a critically low level".

For meals and cakes, world supplies will rise by some 3% in 2010-11, supported by rising output of product derived from cottonseed, fish and groundnuts.

However, consumption will increase by 5% - of which 40% will be accounted for by China, "driven by rising population and income combined with surging per capita consumption of livestock products".

India Vegetable oil imports 1mt as Stockists

Vegetable oils commodity import of India a record one million tonne in August as stockists and processors purchased heavily to meet the increased demand ahead of festival season.

Analysis showed that retail prices of refined soybean oil have been in the range of Rs 49 to Rs 55 a litre during last one year. ?Although the global crude edible oil prices have moved up marginally by about 7% during last few months, but there is no cause of concern for the next few months,? Chaudhry had said. "We have enough stocks of crude edible oil (mostly palm and soyabean) at ports and pipelines for dealing with the rise in demand during coming festival season," Siraj Chaudhry, CEO of refined oils, Cargill India, had said.

Latest data from the Solvent Extractors' Association of India (SEAI), import of 1.06 million tonne of vegetable in August 2010 mainly consisting of edible oil is the highest in a single month since the government allowed import of crude vegetable oil for meeting the domestic demand in 1994.

India imported around 64,000 tonne of non-edible oil in August which is an increase of 64% compared to same month last year. About 1.3 lakh tonne of RBD palmolein, 5.4 lakh tonne of crude palm oil and 2.1 lakh tonne of soyabean oil were imported during the month. SEA said around 6.8 lakh tonne of edible oil stock was at ports and about 7 lakh tonne were in the pipeline at the start of this month.

Edible oil demand India usually jumps ahead of festivals and marriage as consumption of fried eatables rises. In August, 2009, edible oil imports stood at 6.12 lakh tonne, while non-edible oil shipments amounted to 37,705 tonne, the industry body said.

India imports palm oils from Indonesia and Malaysia, while soyaoil and sunflower oil are sourced from Argentina and Brazil. India, the second-biggest vegetable oil consumer after China, had imported a record 8.6 million tonne of vegetable oil in the 2008-09 oil year.