Palm Oil Demand Seen Rebounding by India’s Ruchi on Prices

Demand for palm oil, the world’s most used vegetable oil, is poised to rebound as the worst losing streak in almost seven years spurs record buying by refiners in India, according to Ruchi Soya Industries Ltd. (RSI)

India’s imports may increase 12 percent to 8.5 million metric tons in the year that started Nov. 1 from 7.6 million tons a year earlier, Dinesh Shahra, managing director of the Mumbai-based Ruchi, said in an interview. The country is the world’s biggest palm importer and Ruchi is the largest buyer and refiner. Purchases in the quarter ended Jan. 31 surged 28 percent to 2.26 million tons.

Palm, used in foods, biofuels and cosmetics, tumbled for eight straight days through March 1, the longest run since March 2006, on concern that supplies will exceed demand. Stockpiles in Indonesia may drop this year as a significant increase in demand outstrips record supplies, according to Derom Bangun, chairman of the nation’s palm board. The excess supply widened soybean oil’s premium over palm to $331.34 a ton today compared with a five-year average of $183 a ton.

“All incremental demand goes to palm oil as it is very competitive compared to other soft oils,” Shahra said. “The current prices are attractive for demand.”

The contract for May delivery traded 0.4 percent lower at 2,403 ringgit ($775) a ton on the Malaysia Derivatives Exchange at 5:29 p.m. in Kuala Lumpur. Futures have lost 26 percent in the past year, falling to a three-year low of 2,217 ringgit on Dec. 13.

Export Taxes

Inventories in Malaysia jumped to an all-time high of 2.63 million tons in December, before falling to 2.58 million tons last month, according to the palm oil board. The country allowed duty-free shipments in January and February, before setting a 4.5 percent tax in March as futures rallied. Indonesia raised its tax to 10.5 percent this month from 9 percent.

India imposed a 2.5 percent tax on unprocessed oils in January to protect domestic growers and have doubled the benchmark price to calculate the tariff to $849 a ton.

“Palm oil is the cheapest oil in India and regular imports are happening now, and in summer palm consumption also grows,” Ruchi’s Shahra said. “Import duty is only 2.5 percent on crude palm oil and demand has already adjusted to the prices.”

Vegetable oil imports, including those for industrial use, jumped 75 percent to 1.16 million tons in January and purchases last month probably exceeded 1 million tons, according to the Solvent Extractors’ Association of India. Purchases will probably reach a record 10.5 million tons to 10.7 million tons in 2012-2013, B.V. Mehta, executive director of the association, said in an interview in Kuala Lumpur today.

India meets more than 50 percent of its cooking oil demand through imports of mostly palm from Indonesia and Malaysia, and soybean oil from Brazil and Argentina. Purchases of cooking oils will climb 5 percent to 10.7 million tons from 9.98 million tons year ago, Shahra said.

Consumption in India will expand 6 percent to 17.5 million tons this year due to rising population and disposable incomes, according to Mehta.

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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