Kuala Lumpur: India, battling its weakest monsoon rains in eight decades and girding for huge festive demand, could boost vegetable oil imports this year by enough to dethrone China as the world’s top buyer, after a six-year gap.
As importers in India snap up cargoes amid growing fears that the domestic oilseed crop will be hit, regional traders expect little downside for Malaysian palm oil futures, which have gained 25% this year.
“India will dominate for next year. The government has not raised the taxes for vegetable oil imports precisely because of these fears of weaker monsoon and crops,” said Sandeep Bajoria, chief executive of Mumbai-based trading firm Sunvin Group. “China just has that abundance of soyabeans for crushing oils, so they will lag.”
With India nearing its festival period when oils consumption peaks and China selling soyabeans from reserves, cutting the need for imports, analysts said palm and soya oil markets would see more buying activity from the South Asian nation.
So far, India is in the lead for the first time since 2003, importing 12.65% more oils at 4.5 million tonnes (mt) between January and June, compared with China’s imports of slightly above 4mt in the same period.
India is one of the largest agriculture producers but its labour-intensive, mostly unirrigated farming depends on the monsoon, which has arrived late and delayed soybean and groundnut sowing in the subcontinent’s central-western region by two weeks.
“Although the size of the summer-sown soybean and groundnut crops is yet to be known, there could be a marginal fall in the oilseed area, due to a shift in favour of higher-priced pulses,” said Govindbhai Patel, a trader in western India.
“In Madhya Pradesh, the area could be lower by 100,000 to 200,000 hectares this season,” he said.
India’s policymakers, spooked by the patchy monsoon, left palm and soya oil import taxes at zero this month in the federal budget, upsetting traders who hoped for a small hike to prevent oilseed farmers from switching to other lucrative crops.
But traders could not deny that cheaper palm oil and soya oil imports fulfil growing demand and temper rising food inflation.
A trade body forecast last week that vegetable oil imports would climb to a record 8mt for the marketing year ending in October, up nearly 27% from a year ago.
In contrast to prospects of tight soyabean supplies in India, China has built a huge reserve of the oilseed—thanks to record imports and massive stockpiling by the government—which could dent vegetable oil imports for much of the year.
Regardless of the world’s economic fortunes, Asians have to celebrate their festivals, buying vegetable oils to make dishes ranging from Chinese mooncake pastries for celebrations of the mid-autumn festival to sweets for the Hindu festival of Diwali.
But China’s soyabean supply glut keeps the world’s most populous country from being the top vegetable oil customer, along with its shorter festival season compared with India.
The mid-autumn festival falls in early October and traders have pegged palm oil and soya oil imports to range between 300,000 tonnes and 450,000 tonnes monthly leading up to the festival, compared to 600,000-800,000 tonnes in the first half of the year.
Analysts expect that the rise in demand from India alone will chip away at the seasonal uptick in palm oil output in top producers Malaysia and Indonesia and keep prices, which traditionally decline in this period, well supported.
“India alone will account for more than 25% of the increase in demand for crude palm oil this season,” said Abah Ofon, Dubai-based softs analyst with Standard Chartered Bank.
Naveen Thukral and Ratnajyoti Dutta in Singapore contributed to this story.