June 26 (Bloomberg) -- Palm oil imports by India, the world’s biggest buyer, may drop for the first time in four years as record global cooking oil supplies reduce the tropical oil’s discount to soybean and sunflower oils.
Shipments may decline 8.4 percent to 7.6 million metric tons in the year started Oct. 1 from 8.3 million tons a year earlier, Govindlal G. Patel, managing partner at G.G. Patel & Nikhil Research Co., told reporters in Mumbai today. That would be the first decline since 2009-2010, according to data from the Solvent Extractors’ Association of India. Soybean oil imports are seen 61 percent higher at 1.75 million tons, while sunflower oil imports will jump 49 percent to 1.45 million tons, he said.
Reduced purchases by India may add to palm oil stockpiles in Indonesia and Malaysia, the largest suppliers. Futures in Kuala Lumpur have slumped 15 percent from an 18-month high in March. The discount to soybean oil averaged $93.90 a ton this year from an average of $244 in 2013, data compiled by Bloomberg show. Palm oil production faces the risk of an El Nino event, which can roil agricultural markets worldwide as farmers contend with drought or too much rain.
“There is good supply of sunflower and soybean oil in the market and prices are very competitive compared to palm oil,” Vijay Data, president of the extractors’ association, told a conference in Mumbai today. “If there is an El Nino and palm production drops, then prices could rise making soft oils more attractive.”
A moderate El Nino would reduce output by as much as 12 percent in Malaysia, according to IOI Corp. An event as severe as in 1997-1998 may cut production by as much as 15 percent, Chief Executive Officer Lee Yeow Chor estimates. Goldman Sachs Group Inc. says disruptions associated with El Ninos have been most important for cocoa, coffee, sugar and palm oil.
El Nino Effect
The event, caused by the periodic warming of the tropical Pacific, brings drought to the Asia-Pacific region and heavier-than-usual rains to South America. Australia remains on El Nino alert even as a slowing in Pacific Ocean warming may push back its onset to September, the Bureau of Meteorology said June 17.
India’s monsoon, which accounts for more than 70 percent of the annual rainfall, is off to the weakest start since 2009, threatening planting of crops including soybeans, peanuts and rice, according to the India Meteorological Department.
“Looking at today’s scenario of the monsoon we do not expect a significant increase in domestic edible oil production,” Patel said. “Imports will rise because consumption is also increasing.”
Total cooking oil imports by India may increase 6.7 percent to a record 11.1 million tons in 2013-2014 from 10.4 million tons a year earlier, Patel said. The South Asian nation imports more than 50 percent of its cooking oil demand, shipping palm from Indonesia and Malaysia, the top producers, and soybean oil from the U.S., Brazil and Argentina.
Soybean oil imports more than doubled to 815,495 tons in the seven months through May from a year earlier and sunflower oil purchases rose 50 percent to 867,599 tons, according to data from the Solvent Extractors’ Association. Palm oil imports tumbled 15 percent to 4.33 million tons, it said.
Palm oil contract for delivery in September fell 0.5 percent to 2,470 ringgit ($767) a ton on the Bursa Malaysia Derivatives today. Prices jumped to 2,916 ringgit on March 11, the highest level since September 2012.
“There is a necessary and compulsory demand base for palm oil of 7 million tons,” said Sandeep Bajoria, chief executive officer of Sunvin Group, by phone from Mumbai on June 24. “Beyond that is dependent on price. This year the differential has reduced and there will be a shift to soft oils.”
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