A palm oil glut is making the crop increasingly attractive against rivals, luring buyers in top importer India and other major markets.
Palm’s discount to sunflower oil has widened to about $300 a ton, one of the biggest gaps seen in the past few years, according to Aashish Acharya, vice president at Patanjali Foods Ltd., one of India’s top vegetable oil buyers. Black Sea attacks have disrupted sunflower oil shipments from Ukraine and Russia, while strong palm oil production in Malaysia keeps supplies buoyant. The crop is also commanding a discount of about $100 a ton to soybean oil, he said.
That has pushed buyers to snap up about 20,000 to 30,000 tons of palm oil daily over the past couple of weeks, he said. Edible oil demand typically rises 10% to 15% in the run-up to Diwali, and buyers are favoring palm this time as its discount widens. Demand has also strengthened in regions including China, Europe and Africa, helping drive a sharp increase in Malaysian exports this month.
"Palm demand is picking up as its spreads to competing vegetable oils like soybean and sunflower oils have widened,” Acharya said, adding that buying interest has strengthened even with ocean freight costs rising by about $15 to $20 a ton in the past 10 days. "Clearly for Indian buyers, palm is the most competitive oil.”
The surge in demand could help Malaysia, the world’s No. 2 grower, whittle down record-high inventories. But it may offer less support than usual to futures in Kuala Lumpur. Abundant inventories have kept nearby prices under pressure, even as adverse weather driven by El Niño is expected to tighten supplies next year.
Strong Indian buying may offer little support to Malaysian futures in the near-term, as physical palm oil can be bought at a substantial discount to the benchmark price, said Preston MacKenzie, a senior trader of vegetable oils with Avere Commodities in Singapore. Palm oil for January on Bursa Malaysia Derivatives was little changed Thursday afternoon near RM4,770 a tonne.
Investors are also watching potential changes to export taxes that could intensify the competitiveness of palm oil supplies. Malaysia is considering temporarily waiving its crude palm oil duty, Bloomberg reported earlier this week, and Indonesia’s levy may also decline in November as a lower monthly reference price would reduce the duties payable by exporters.
That could keep the purchases going. Indian stocks of sunflower and soybean oils should start drawing down in the next six to eight weeks, freeing up storage capacity for additional palm oil imports, MacKenzie added. - Bloomberg
