Weather, India to spur vegetable oil prices
Global vegetable oil prices are likely to rally further from recent highs later this year, as top buyers like India and China consume more and adverse weather hits output, analysts and traders told a conference.
"At present, it looks like, for the third year in a row, incremental supply will not match incremental demand," said Dorab Mistry, who heads the trading arm of Godrej International Ltd, referring to the new oil year from October 2010.
India is expected to import record amounts of vegetable oils in 2010/11, with analysts saying it could buy in 9.3-9.5 million tons, up from 9 million tons this year, as its billion-plus population gains spending power in a growing economy.
India is the world's largest consumer of edible oils, beating China to the top slot last year. Most of its palm oil imports come from Malaysia and Indonesia, with a small quantity of soyoil from Argentina and Brazil.
China, the world's top soyoil importer and a leading buyer of palm oil, has banned Argentine soyoil in a bitter trade dispute.
That has forced traders to turn to the United States for cargoes, just as domestic supplies shrink on strong festive demand and as crops are hit by erratic weather.
Heavy rains over key palm oil producing Indonesia and Malaysia and dry weather in South America could stoke prices further, experts said.
"Prices should begin to recover as exports remain strong, harvest pressure in destinations like India and China subsides and pipelines are refilled," Mistry told the conference.
The impact of dry weather on soybean-producing South America and rising demand for bio-fuels in the United States are also likely to support vegetable oil prices, Krishna said.
Palm oil prices could touch 3,000 ringgits ($970.2) per ton as a result of adverse weather conditions, said Yong Chin Fatt, chairman of the Palm Oil Refiners Association of Malaysia, with analyst Thomas Mielke, head of global oilseed research group Oil World, looking for this target in five months.
Mistry said palm oil prices could rise as high as 3,200 ringgits by January -- about 18.5 percent over current levels.
Traders said prices could rise as early as Monday on the bullish tone from the conference.
"Malaysia palm oil futures are poised for a strong start of about 30-50 ringitt higher on Monday," a trader with a foreign brokerage in Kuala Lumpur said.
SOYOIL PREMIUM TO STRETCH AGAIN?
Soyoil's premium to palm oil has narrowed in recent months but could widen again, experts said, on Chinese demand, prompting India to hike palm oil's share of total imports.
Trader Govindbhai Patel, managing director of Dipak Enterprise, told the conference that India's palm oil imports could rise 11.3 percent in 2010/11 to 6.8 million tons while soyoil imports could fall 6 percent to 1.5 million tons.
December soyoil on the Chicago Board of Trade soared to a two-year high on Friday, while Malaysian crude palm oil futures have been hitting new highs.
Soyoil futures traded at about $980 a ton on Friday, while Malaysia's benchmark palm oil futures closed at 2,701 ringgit ($871.8).
Fatt said China was actively buying palm oil in the past few weeks, supporting the upside, echoing the views of Thomas Mielke, who said soyoil prices could reach $1,050 in Argentina and $1,150 in Europe.
But before prices pick up steam with demand, vegetable oils could be volatile to slightly lower in the short term as output and stocks rise in India and China, experts said.
"The vegetable oil market will remain volatile for some weeks. After that we see a rally fueled by rising global demand and increasing need for biofuel, Murali Krishna, chief executive of TransGraph, a commodities research house, said.
Mistry said he thought prices would be rangebound with a lower bias for the next four to six weeks due to the arrival of new crops in India, which starts harvesting soybean in September, and China.
London-based James Fry, chairman of LMC International, added a note of skepticism over any rally's sustainability.
Fry said international vegetable oils prices had surged more because of speculation than fundamentals.
"It is definitely not due to fundamentals. Speculation is there," Fry told Reuters.
"Soyoil prices are $100 too high ... by implication palm oil prices are also too high, and by over $100," he added.
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