Cheap Soybeans Threaten Palm Oil's Top Spot in Indian Kitchensby
Soybean oil imports seen at record 4 million tons in 2015-16
Palm oil's share shrinks to 61 percent from 90 percent in 2011
Indian housewives and food processors are using more soybean oil than ever, cutting the country’s reliance on palm oil shipped from Southeast Asia.
Imports of the cooking oil produced by crushing soybeans will jump to more than 4 million metric tons in the year through October, said B.V. Mehta, executive director of Solvent Extractors’ Association of India. That will boost the share of the oil in India’s total imports to about 25 percent, more than double the 11 percent in 2011-12, data from the association show. The oil is mostly shipped from Argentina, Brazil and the U.S.
India’s increasing preference for soybean oil may damp efforts by palm oil’s top producers Indonesia and Malaysia to trim stockpiles as a crash in crude oil prices weakens demand for the vegetable oil as a biofuel. An expanding population and rising incomes are boosting consumption of cooking oils in India, where demand is set to surge as much as 75 percent to 35 million tons by 2025, the association estimates. The country meets more than half its cooking oil requirements through imports.
“Soybean oil currently is very competitively priced and that’s what is driving demand,” said Atul Chaturvedi, chief executive officer of Adani Wilmar Ltd., a refiner and retailer of cooking oils. “In the consumer’s perception, soybean oil is a better oil compared to palm oil. Moreover palm oil has a tendency to harden during winter.”
Soybean oil prices in Chicago fell for a fifth straight year in 2015, the longest streak since at least the 1960s, as bumper oilseed harvests from the U.S. to Argentina worsened a global glut. That’s shrunk soybean oil’s premium to palm oil by more than 50 percent to about $72 a ton from a 2015 peak of $164, according to data compiled by Bloomberg.
Palm oil’s share in India’s total imports declined to 61 percent in the two months through December from 72 percent a year earlier, while the so-called soft oils including sunflower and canola oils, accounted for 39 percent of overseas purchase, association data show. Total cooking oil purchases may climb to as much as 16 million tons in 2015-16 from 14.4 million tons a year earlier, the association estimates.
Palm oil, which reached a 20-month high in Kuala Lumpur on Friday, is poised to extend gains as the impact of the strongest El Nino in almost two decades manifests in production, according to BMI Research and CIMB Investment Bank Bhd. That means palm will become less competitive and reduce Indian demand, said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Singapore said.
Palm oil rallied as much as 2.9 percent to 2,604 ringgit ($629) a ton on Bursa Malaysia Derivatives in Kuala Lumpur on Friday, the highest level since May 2014, before closing at 2,575 ringgit. Soybean oil futures traded at 31.50 cents a pound on the Chicago Board of Trade, 2.4 percent higher this year.
“Whatever incremental demand emerges will be taken over by soybean oil,” Adani’s Chaturvedi said. “It’s all about the issue of pricing,” Chaturvedi said.