Excess palm oil supply triggers distress sale

Palm oil is being sold at Rs 1.50 a kg discount to the prevailing price in the benchmark Malaysian markets, thanks to an abundance of supply from Indonesia.

The landed cost, including insurance and freight, of palm oil at Indian ports is Rs 347 per 10 kg as against the market price of Rs 332.

Indian traders secured supplies from Indonesia, one of the world’s largest vegetable oil suppliers, in huge amounts anticipating an import tax levy by the Central Government. Many leading industry representative organisations have demanded an import levy of 30 per cent on both palm oil and sunflower oil as for soybean oil, to protect domestic farmers.

“If we want our farmers not to suffer due to low prices, we need import duty. Otherwise, edible oilseed farmers will divert to other crops and dependence on imports would increase further,” said B V Mehta, executive director, Solvent Extractors’ Association (SEA).

Mehta urged commodity trade organisations such as State Trading Corporations and the National Agriculture Cooperative Marketing Federation (Nafed) to launch market intervention operations (MIO) when prices of edible oil decline or rise heavily.

Many traders booked afresh in the Indonesian market when crude palm oil started looking up at 2300 ringgit in benchmark Bursa Malaysia’s Derivatives Exchange a month ago. But, the leading consummable edible oil slipped to 1800 ringgit on higher output this year.

According to the latest estimates by the Germany-based “Oilworld”, the leading magazine on the edible oil industry, global palm oil production increased an unprecedented 4.9 million tonnes or 13 per cent in October-September 2007-08. This was more than the demand could absorb, boosting world stocks of palm oil to a new high of around 7 million tonnes in November 2008.