Palm Oil To Be A Feasible Energy Source - Oct 20, 2008

Chennai: Delighting the advantage of being more profitable and feasible than soyabean oil, palm oil is likely to find new uses for industrial application and as an energy source, according to Mr Dorab Mistry, Director of Godrej International. Currently, there are curbs on palm oil use in energy due to lack of certified green credentials and with the problem being. efficiently addressed and once certified green palm oil is available in sufficient quantity a vast new market will open up, Mr Mistry said.

presenting a paper on 'The competitive advantage of palm oil versus other vegetable oils' at China International Conference of Seed Crushers 2008 held in Nanjing, China. Palm oil will produce environment-friendly, bio-degradable oleochemicals to substitute petro-chemcials and it will make vast strides to give world energy security via bio-fuel use.

Palm Oil May Test Support Level

Malaysian palm oil futures ended lower on Friday, on profit-taking and prospects of higher output combined with the strengthening of the ringgit against the dollar. The Malaysian Palm Oil Board is expected to revise upwards its output forecast for 2008 to 16.7 million tonnes from an earlier projection of 16.2 million tonnes.

Malaysia produced 15.8 million tonnes of palm oil in 2007. Subsidies for lower income households in India for imported palm oil could dampen sentiment among private importers, which could hurt anticipated robust demand from India due to recent duty cuts.

CPO active contract pulled up higher, but failed to garner enough momentum to push forward. Supports are now at 3495-3510 Malaysian ringgit (MYR) tonne levels. Failure to hold support here could take prices even lower towards 3375 or 3275 MYR/tonne levels now.

Despite the break of 3650 MYR/tonne, we still remain a bit apprehensive of any major bullishness to set in into the edible complex. The grains complex--wheat, has technically shown clear bearishness now and the energy complex is also vulnerable for a good profit taking, after its recent run up. The wave counts need a complete re-look, as the present move has altered most of the big picture counts we have been tracking so far.

A new impulse began from 1427 MYR/tonne and this could be the third wave which has not ended so far. We can expect a corrective fourth wave in the form of A-B-C to have begun now. RSI is in the neutral zone now, indicating that it is neither overbought nor oversold.

The averages in MACD are above the zero line in the indicator indicating bullishness to be intact. Therefore, look for palm oil futures to test the support levels now.

Supports are at MYR 3495, 3370 and 3275. Resistances are at MYR 3595, 3650 and 3700.

Indian Importers Default On Palm Oil Contracts

Mumbai: Even as the stand-off between select big boys of the edible oil trade (major sellers) and a large number of small buyers in the local markets of Mumbai, Kolkata and South India continues, comes the news of large-scale default by Indian importers following a decline in international prices.

Importers who had purchased crude palm oil at prices as high as $1,400 a tonne CIF sometime in February are wriggling out of the obligation as the market has undergone a sharp correction of up to $300 a tonne. One of the reasons attributable to purchases at such fancy prices was the expectation of a continuing bull run; but that was not to be.

According to a trade estimate, crude palm oil contracts totalling 250,000 tonnes are in a state of suspended animation. Overseas suppliers are livid that importers here are trying to opt out of the obligation. Most of the contracts are with suppliers from Indonesia. The default is sure to damage the fair image of India, according to market observers. Some shipments from Indonesia destined for India have reportedly been diverted to Pakistan because Indian importers have refused to meet their obligation.

Indian importers are already carrying sizeable stocks that were accumulated when prices were high. With a sharp fall in domestic prices as a result of softening international rates and waiver of duty by the Indian government, the importers find themselves in an awkward position.

The domestic offtake has also turned sluggish because of what is seen as the intransigent attitude of some large operators who are unwilling to amicably settle commitments that were made before the duty revision took place.

Reports from different parts of the country point to one or two major players with high stakes pressurising local dealers to take delivery of high priced goods even when the market has actually fallen. “We are in no position to accede to the dadagiri (bullying tactics) of big boys,” lamented a local dealer on the condition of anonymity.

The mess in the domestic vegetable oil market is unhealthy. Dominance by a few large firms is seen distorting the market, rather than advance stakeholder interest. In a distorted market, the real benefit of government action - zero-duty on crude oils - may not actually and fully reach the intended beneficiaries, that is, the poor consumers.

If the government is serious about delivery of real benefit to the aam aadmi, there is a strong need to regulate the vegetable oil trade, asserted a seasoned player.

“A handful of large refiners dominate this market, call the shots and make enormous amounts of profits. Their stranglehold on the market can be broken only if traders are encouraged to import refined oils that can be readily marketed,” pointed out a trade intermediary.

Currently, there is a 7.5 per cent customs duty on refined oils, which discourages traders from importing refined oils.

If the duty is removed or reduced to less than 5 per cent, more refined oils will flow into the country and help reduce volatility and contain prices. While refiners will continue to import crude oils at zero duty, traders too can participate in import business by bringing in refined oils which will result in stable but reasonable margins for all participants. The position can be reviewed sometime in September /October when the next kharif oilseeds crop gets ready for harvest.

Another effective method to insulate poor consumers from volatile market conditions is to revive the supply of edible oil through public distribution system. The oil must be priced at a subsidised rate. Leakages should be plugged with more effective vigilance.

Global Palm Oil Gains 9% On Customs Duty Cut

Chennai: Crude palm oil had peaked to $4,486 a tonne on the Malaysia Derivatives Exchange on March 4. By March 19, it had shed 25 per cent of the gains to slip to $1,064.20. Then, on March 20, the Centre announced a cut in Customs duty on all crude and refined cooking oils, except soyabean oil, as part of its effort to rein in inflation.

Trigger

But as it had happened on the previous occasions, the duty cut only proved to be a trigger for crude palm oil to rebound. On March 21, it shed about four per cent initially following fall in prices of soyabean on the Chicago Board of Trade. But once the impact of the Indian Customs duty cut was digested, it pared all the losses. Domestic prices were, however, a little lower than March 20 prices on Wednesday.

On Monday, palm oil stabilised at $1,064.20, but on Tuesday and Wednesday, it made headway to close at $1,160 a tonne, a gain of nine per cent. In between, Indonesia has taken this opportunity to double its crude palm oil tax to 20 per cent. From April 1, the base price on which the tax will be levied by Indonesia will be $1,196 a tonne against the current $988.

Chance to hike

“Indian Customs duty cut has always helped the producers of palm oil rather than the customers. Whenever the Centre has announced that it was slashing duty, countries such as Indonesia have taken the opportunity to jack up the prices,” says B.V. Mehta, Executive Director of the Solvent Extractors Association.

Palm oil, in particular, has proved to be the beneficiary since soyabean oil has been left out of the cut. The first time the Centre cut the duty was on January 25 last year, when the levy on crude edible oils was cut by 10 percentage points and on refined oils by 12.5 percentage points.

On April 13 last year, the duty was further cut by 10 percentage points for all cooking oils before the Centre again slashed the duty by another five percentage points on July 23. The latest was on March 20 last.

During this period, benchmark crude palm oil contracts have gained from $531.41 (on January 25, 2007) to $741.90 (July 23, 2007) to the current level.

Upper circuit

On the other hand, soyabean has been gaining in the global market during the last two sessions, mainly in view of a strike by Argentinian farmers during the last two weeks. They are protesting against the President, Cristina Fernandez’s move to increase export taxes for soyabean.

With both parties refusing to budge, exporters there have announced default or shifted orders to the US, leading to rise in prices. On Tuesday and Wednesday, soyabean hit the upper circuit on Chicago Board of Trade with May contracts rising to $498.53 a tonne (13.57 a bushel) from $443.42 ($12.07) during the weekend.

“The move to leave soyabean oil from the duty cut leaves consumers with no choice but to buy palm oil,” said Mehta.

However, the solvent extraction units are pressing for a cut in soyabean oil duty as well. A Commerce Ministry official, earlier this week, said it was on the cards.

Fears

Trade sources said soyabean oil was left out on the fears that it could affect farmers in Madhya Pradesh, the country’s hub of soyabean, and a record 94 lakh tonnes crop.

Trade sources said soyabean oil would be badly required during April-June, particularly for small refining units, since the soyabean stocks would have been exhausted by then. “Only big refiners can utilise palm oil. Small refiners certainly need soyabean oil,” they said.

Palm Oil May Top 4,000 Ringgits Soon

Kuala Lumpur: Crude palm oil prices that have been hovering around 3,500-3,700 Malaysian ringgit (MYR) a tonne could touch 4,000 MYR a tonne quicker than many think, a representative of Frost and Sullivan told the delegates at the “Palm and Lauric Oils Price Outlook” conference here on Tuesday. Over 1,700 delegates from over 40 countries are participating. Run-up to Budget 2008-09

Biofuels prop up the prices of agricultural goods through increased demand, setting a floor for other crops, he pointed out, adding that the market will continue to look for ways to grow, especially bioethanol crops. Energy security and politics will be a key reason behind this, the expert asserted.

Importantly, over the next five, 10 or 20 years, whether oil will keep up with the demand growth in the context of factors like growing population, energy needs, crops competing for land and water stress should cause considerable concern, he reasoned.

Suggesting that palm bio-diesel was a cost-effective environment-friendly fuel, U.R. Unnithan of Carotino Sdn Bhd pointed out that in a free market world, palm bio-diesel was still the most cost effective diesel substitute as shown by Malaysian data. In terms of energy efficiency, greenhouse gas emissions and sustainability, the product stood out as an excellent eco-friendly fuel, he said.

Given palm’s best yield improvement potential, it can alleviate the food versus fuel problem, according to Unnithan.

Industry, Trade Upbeat On Palm Oil Price Outlook

Kuala Lumpur: A day ahead of the much-awaited annual Palm Oil Price Outlook organised by Bursa Malaysia, the mood within the vegetable oil industry and trade, especially among producers and exporters, is absolutely upbeat. And why not? Run-up to Budget 2008-09

The market has gone through an unprecedented period of bullrun that has taken prices to four digits in dollar terms, a stark contrast with the long bear run of 2001-2002.

Driving factors

Currently both crude palm oil and soyabean oil are trading well above the psychological $1,000 a tonne, nearly five times higher than prices 5-6 years ago; and twice the rates traded in 2006.

What changed in the recent years?

An unusual combination of factors - robust surge in demand, supply uncertainties and fund play - are currently seen driving the commodities market in general, and vegetable oil market, in particular, up.

Asset class

Importantly, commodities are now an asset class in the league of stocks, bonds, foreign exchange and real estate. Last one year, some commodities such as gold have outperformed other traditional asset classes.

Obviously, there is a larger flow of funds for trading commodities; and when the market fundamentals face uncertainties or imbalances - such as the one vegetable oil market is currently facing - can funds lag behind?

Trading volumes

Trading volumes in the futures counters have grown rapidly. Whether Bursa Malaysia for crude palm oil or Chicago Board of Trade for soyabean oil, trade transactions are exploding.

The interest in vegetable oils is heightened by other factors such as the crude market, ocean freight rates and exchange rate.

Will crude palm oil reach ringgit 4,000 a tonne or is there a possibility of correction down to around ringgit 3,000? Bursa Malaysia has lined up several expert speakers from around the world to present their perceptive analysis of the current global vegetable oil market dynamics and expectations of the shape of things to come.

Analysis meet

The keynote speech will be delivered by the Guest-of-honour, Dr Peter Chin Fah Kui, Malaysia’s Minister for Plantation Industries and Commodities.

Dr James Fry of LMC International will speak on the lessons we can learn from the past bull markets and Thomas Mielke, Hamburg-based editor of Oil World, will share his thoughts on the reactions of the world vegetable oil market to challenges from the energy market.

Dorab Mistry, Director of the London-based Godrej International, will present a paper on palm oil price outlook with special reference to India. There will also be experts speakers on palm oil producers’ perspectives and soya oil complex outlook.

A special session on biodiesel too has been organised. About 1,700 participants are expected to turn up for the event.