India’s vegetable oil traders hold back as volatility in palm oil futures intensifies

India’s vegetable oil traders have been holding back from conducting new business amid wide swings in palm oil markets in the first three weeks of June, following news of a potential changes in taxation and biodiesel mandates, as well as mixed supply and demand data, market sources told S&P Global Platts.

“We are just catering to functioning requirements of the [vegetable oil] refineries right now. We don’t know if the market falls off and there are lifting issues,” an India-based vegetable oil trader said.

Palm oil prices rose in early June following signs of renewed buying from India — the largest buyer — combined with sluggish production and ending stock data released by the Malaysian Palm Oil Board.

However, on June 14, palm oil futures went into free fall and the benchmark third month contract traded near to the 10% cut-off limit on the Bursa Malaysia Derivatives index after reports that US President Joe Biden may consider giving oil and gas companies a reprieve from their biofuel blending commitments. Palm oil and soybean oil are used as feedstock for making biodiesel along with their use in food and cosmetics.

Palm oil futures fell a further 6% in the week between June 14 and June 18, with small recoveries on June 15 and June 18.

The market will remain in a volatile mood, seeing some small recoveries in price in the meantime, sources said. Traders appear to have reached a short-term consensus that the floor price will be near to the MR3,300/mt level, RHB Futures said.

“Buying from Indian traders has definitely slowed down due to this uncertainty,” Anil Kumar Bagani, research head at vegetable oil brokerage Sunvin Group said.

India imports about 8-9 million mt of palm oil each year.

In May, the country’s imports of crude palm oil were up 10% month on month to a four-month high of 769,602 mt, data released by national trade body the Solvent Extractors’ Association of India showed.

Analysts and traders said that the bearish sentiment in the palm oil market will likely persist until there is more clarity on production.

“Nothing has changed in the edible oils supply tightness and demand is surprisingly still holding strong even in the short term. For a meaningful reversal continuation, we will have to wait for August/September as production picks up more aggressively,” Marcello Cultrera, institutional sales manager at Philip Futures, told Platts.

In a webinar June 14, veteran vegetable oil industry analyst and director of Godrej International Dorab Mistry said that the fall in palm oil prices does not justify the current levels of ending stocks and that palm oil futures would recover sharply by MR200-250/mt ($48.2-$60.28)

S&P Global

Tags: trade, India, vegoil