TEMPO.CO, Mumbai - The rebound in palm oil prices is likely to be capped by abundant supplies of rival soy oil and sunflower oil, "soft" oils that are available at discounts to tropical palm oil for the first time in more than a year.
Benchmark Malaysian palm oil futures have risen nearly 5% in 2024 after losing 11% last year.
Primary competitor soy oil typically trades at a premium to palm oil, but a record South American soybean crop has driven down prices, and buyers are taking more soy oil shipments.
Soft oils production is rising while palm oil production is falling, driving divergent price trends, said Vipin Gupta, chief executive officer of Dubai-based trader Glentech Group.
"Higher prices are pushing away buyers from palm oil, which will limit the price rise," Gupta said.
Crude palm oil (CPO) imports are being offered at about $930 a metric ton, including cost, insurance and freight (CIF), in India for March delivery, while soy oil and sunflower oil are offered around $915 and $910 a ton, respectively, dealers said.
Palm oil, available at a discount of nearly $200 a ton to soy oil in November, is trading at premiums as dryness caused by El Nino weather is limiting output in the two largest producers, Indonesia and Malaysia.
In India, the top vegetable oil importer, buyers are trimming palm oil imports and increasing soy oil for shipments in coming months, said Sanjeev Asthana, CEO at Patanjali Foods Ltd (PAFO.NS), opens a new tab, India's top palm oil buyer.
Palm oil imports by India fell to their lowest in three months at 787,000 tons in January as soy oil purchases rose 24% to 190,000 tons.
India's soy oil imports could jump to 300,000 tons in March and further to 400,000 tons in April, while palm oil imports could fall to around 700,000 tons, said Sandeep Bajoria, CEO of Sunvin Group, a vegetable oil brokerage.
Negative refining margins for palm oil for Indian refiners contrast with the positive margin in soy oil and sun oil, prompting increases of soft oil purchases, said Rajesh Patel, managing partner at edible oil trader and broker GGN Research.
India buys palm oil mainly from Indonesia, Malaysia, and Thailand, while it imports soy oil and sunflower oil from Argentina, Brazil, Russia, and Ukraine.
Due to higher freight costs, palm oil is even more expensive for European buyers and is trading in Europe at a premium of up to $100 a ton over soy oil, canola oil, and sunflower oil, said a Singapore-based dealer with a global trading house.
CORE DEMAND INTACT
While high prices are likely to squeeze household consumption, industrial demand for palm oil is likely to remain intact, the Singapore dealer said.
In Pakistan, palm oil is primarily used to make vanaspati ghee, a cheaper substitute for clarified butter, for which demand will persist, said Rasheed JanMohd, chief executive of Karachi-based Westbury Group.
Palm oil is expected to maintain its premium for at least a few months, as production in Indonesia and Malaysia declines and demand for biodiesel in Indonesia rises, said a Kuala Lumpur-based vegetable oil trader.
"Palm oil stocks are decreasing in producing countries, which will give them leverage to quote higher prices," the trader said.
Malaysia's palm oil stocks likely fell for the third straight month in January, a Reuters survey showed.
REUTERS
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