Palm Loses Ground in India to Cheapest Soybean Oil Since ‘08

(Bloomberg) – India, the world’s largest importer of cooking oils, will buy more soybean and sunflower oil this year than ever before as a global glut weakens prices and prompts buyers to switch from palm oil.

Purchases of soybean, sunflower and canola oils will probably jump 15 percent to 4.2 million metric tons in the year that began on Nov. 1, said Govindlal G. Patel, managing partner at G.G. Patel & Nikhil Research Co. They will account for 33 percent of shipments and palm oil will represent 67 percent, the smallest share in eight years, he said.

Palm is losing ground after record soybean supplies from the U.S. to Brazil sent prices of the alternative oil to a six-year low. Palm’s discount to soybean oil in 2015 is less than half the average of the past five years, data compiled by Bloomberg show. India may also buy less palm if Indonesia follows Malaysia in taxing exports, said B.V. Mehta, executive director of the Solvent Extractors’ Association of India.

“Soft oils are much more competitively priced so the palm oil share will be lower,” said Patel, who’s traded oils for more than four decades. “Much will depend on Indonesia’s decision on the duty structure,” he said by phone from Rajkot on March 18. Soybean, sunflower and canola are known as soft oils.

Malaysian shipments will be taxed for the first time in eight months in April after prices exceeded the level that triggered the levy, the Palm Oil Board said March 16. Indonesia has kept a zero tax on most palm oil shipments for six months through March and may extend that through April because reference prices are still below the threshold, according to the Indonesian Palm Oil Association on March 18.

Soybean oil futures traded in Chicago slumped in January to the lowest since 2008 and were at 30.91 cents a pound on Monday, while palm prices plunged 19 percent in the past year to settle at 2,186 ringgit ($596) a ton in Kuala Lumpur.

Shrinking Premium

Palm imports by India were 2.8 million tons in the four months through February, or 67 percent of the total, data from the solvent extractors show. That’s down from 76 percent a year earlier. Purchases of soft oils were 1.4 million tons, or 33 percent versus 24 percent, the data show. Total imports will be a record 12.6 million tons this year, Patel said.

Palm was an average of $72.86 a ton cheaper than soybean oil this year compared with a five-year average of $155, data compiled by Bloomberg show. That’s spurred Indian consumers to buy more soft oils, according to Harish Galipelli, head of commodities and currencies at Inditrade Derivatives & Commodities Ltd.

“Palm oil is kind of a cheap alternative,” Galipelli said from Hyderabad March 19. “When soybean oil is available at a cheaper price, people tend to go for that only.”

Global Supplies

Global output of nine oils including soy, palm and rapeseed will expand 2.8 percent to 175.65 million tons in 2014-2015, U.S. Department of Agriculture data show. Farmers worldwide will harvest a record 315.06 million tons of soybeans this year, the agency estimates.

Cooking-oil demand in India may jump to 25.7 million tons by 2020-2021 from 19.3 million tons this year, with imports rising to 16.3 million tons from 12.5 million tons, Mehta said on Feb. 23. India buys soybean oil from Argentina and Brazil and palm oil from Indonesia and Malaysia, the top producers.

Local supply of oils will decline 9 percent to 7.6 million tons this year, according to the Central Organisation for Oil Industry & Trade on March 17.