Palm oil prices have been outperforming soybean oil since August, gaining about 8 percentage points more on a threat to yields from what analysts have termed a "monster" El Nino weather pattern. Plentiful world soybean supplies have further tightened the price spread.
With palm becoming less competitive, India's purchases will climb only 100,000 tonnes to 9.7 million tonnes this marketing year, while soyoil purchases will surge 40 percent to 4.2 million tonnes, said Zia Ul Haq, trading manager at an edible oils procurement company IFFCO (S.E.A.) Sdn Bhd.
"The soyoil market is expected to be under pressure due to ample world supply while palm is trying to hold at current price levels," the trading manager said, explaining the tighter price spread. "Traders are expecting palm production to drop and the El Nino impact to kick in during the second quarter next year."
Palm prices soared 57 percent in 2009 partly due to an El Nino, which typically brings crop-damaging dry weather across Southeast Asia. Benchmark futures are currently near an 18-month top of 2,490 ringgit ($579.07) per tonne.
Higher demand from the biofuel sector for blending purposes will keep palm oil prices elevated, the trading manager said, dragging further on demand for the tropical oil.
Indonesia has been pushing for greater local use of edible oil-based biodiesel to cut its fossil fuel import bill and create more demand for palm oil, of which it is the world's biggest producer and exporter followed by Malaysia.
This comes at a time when global soybean oil output is expected to hit an all-time high of around 51 million tonnes in 2015/16, according to data from the U.S. Department of Agriculture (USDA).
Reflecting these fundamentals, the spread between soyoil and palm prices has narrowed about $40 over three weeks. Traders believe this could impact India's import demand.
The country consumes 18-19 million tonnes of vegetable oils annually and , of which about 9 million is palm oil.
USDA data shows India's palm oil imports rose 16 percent to a record 9.1 million tonnes in 2014/15, while soyoil arrivals surged 50 percent.
Leading vegetable oils analyst Dorab Mistry, however, said that higher soyoil use by India would drive up prices of the commodity, tilting the balance in palm oil's favour once again.
"Soyoil has limited availability. The bean is only 18-19 percent oil, you'd have to crush a lot to get a small amount of oil," he said.
($1 = 4.3000 ringgit)- Reuters