Refineries in India, the world's largest importer of Palm oil, have cancelled purchases of 100,000 metric tons of the product for delivery between October and December. The decision came after the government in New Delhi raised import duties in response to rising international prices. Trade sources told Reuters that 50,000 tons were cancelled in just four days, including 50,000 on Monday, after Malaysian palm oil futures hit their highest level in 2-1/2 months.
Such cancellations could slow the rise in Malaysian palm oil prices, but at the same time could boost the soybean oil market as some refiners are opting for this alternative.
In early September, the Indian government increased the basic import duty on crude and refined edible oils by 20 percentage points, raising the total duty on crude palm oil from 5.5% to 27.5%.
Contract cancellations boost profits for Indian refiners
“The sudden increase in taxes, coupled with the increase in Malaysian prices, took everyone by surprise,” said an Indian buyer who runs a refinery on the east coast and who canceled palm oil orders for October delivery. “Now, refiners are making more profit by canceling old orders than by refining and selling. Sellers are also happy as they can sell at higher prices to new buyers.”
India, which usually imports 750,000 tonnes of palm oil per month, saw 13.3% of those imports affected by the recent cancellations.
Crude palm oil (CPO) is currently being offered at around US$1,080/tonne in India, compared to US$980~US$1,000 last month. The difference provides a profit margin of US$80 to US$100 per tonne to buyers.
East Coast refiners are canceling old contracts to make more profit, said Aashish Acharya, vice president at Patanjali Foods Ltd.
Affected imports
India imports palm oil mainly from Indonesia, Malaysia and Thailand. According to Sandeep Bajoria, CEO of Sunvin Group, a vegetable oil consultancy, “Refineries are uncertain about demand for the December quarter due to high prices. They are also uncertain about price stability, which is leading to contract cancellations.”
Historically, Asian buyers have preferred palm oil for its low cost and fast delivery. However, with the recent price increase, palm oil is now selling at a premium to soybean oil.
Trend change
“Buyers are turning to cheaper alternatives like soyabean oil and sunflower oil to meet their winter needs,” said a Mumbai-based dealer of a global trading house.
Typically, India's palm oil imports fall during the winter months as the oil tends to solidify in lower temperatures. India mainly imports soybean and sunflower oil from Argentina, Brazil, Russia and Ukraine.
Source: Rajendra Jadhav | Reuters and Notícias Agrícolas
