Kuala Lumpur/New Delhi: Asia’s vegetable oil guzzlers, China and India, are likely to step up purchases in the coming months and boost palm oil prices, which has already hit near nine-year highs on a squeeze in supplies.
The onset of summer and firm yuan currency against the dollar will result in larger quantities of palm oil flowing into China, the world’s largest edible oil buyer, traders said.
India, grappling with poor domestic supplies, is expected to import more edible oil until local oilseed crops start maturing in October.
“As we move into warmer weather, especially in central and southern China, there will be a substantial jump in demand for palm oil,” said one Malaysian trader, who sells mainly to China.
“They have also exhausted palm stocks lying in the ports during Labour Day holidays.”
Malaysian palm oil, which has gained more than 20% this year on the back of a supply squeeze at home and strong global demand, rose to a near nine-year high on Thursday.
The benchmark August contract was up 21 ringgit at 2,410 ringgit ($712) a tonne at the end of the morning session.
“Right now, the market is poised for a rally that will push the benchmark to a new high if exports turn out to be good,” one dealer said.
Supplies of palm oil, widely used in products ranging from food and costmetics to fuel, are unlikely to improve dramatically despite good rains in the growing regions.
“There is definitely a change in the production pattern this year where yields have not been as high as anticipated,” said Martin Bek-Nielsen, executive director at United Plantations.
“The output in Indonesia is also increasing but not as substantially as one would have expected because of the earlier drought,” said an official at one plantation company in Jakarta.
Traders estimate China will buy 370,000 tonnes of Malaysian palm oil in July compared with 253,000 tonnes shipped in July last year.
India will not lag behind its neighbour China, as the nation bought less edible oil in the beginning of the year, waiting for prices to ease.
“Supplies of edible oil in the domestic markets will go down,” said Shardul Sharma, an analyst with brokerage Sharekhan Commodities.
“As a result we expect 90,000 tonnes of edible oil imports in the next month-and-a-half.”
Dealers said higher edible oil prices will not dent Indian buying as a strengthening rupee and lower import tariffs cushion the impact.
Palm oil constitutes half of India’s edible oil imports, which are expected to surge to at least five million tonnes (mt) in the year to October.
“If everything is normal, then we would import 3- 3.5mt in the next six months,” said Davish Jain, chairman of the Central Organisation of Oil Industry and Trade.
And Pakistan, which has emerged as a big edible oil importer in recent months, is looking for more cargoes for July and August shipments to meet a surge in demand during the Muslim holy month of Ramadan.
The South Asian nation is expected to buy up to 125,000 tonnes of edible oil a month from July.
“We have Ramadan in September and the buying will start again. I presume July and August will be heavy months,” said Rasheed Janmohammed, vice-chairman of the Pakistan Edible Oil Refiners Association.
Freight rates, which have started declining because of oversupply in the availability of ships, will help reduce the impact of high edible oil prices.
“There have been too many vessels lying around; chemical trade was supposed to pick up but it has not gone up as it was expected to,” said one freight broker.