Crude palm oil (CPO) declined on speculation that excessive supplies from Indonesia and Malaysia would be difficult for the industry to absorb despite shortfall in India because of deficient monsoon.
CPO for delivery in October fell 2.67 per cent on the Multi Commodity Exchange (MCX) to trade at Rs 349.70 per 10 kg while the commodity for delivery in August and September slipped 1.51 per cent and 1.79 per cent to Rs 353 and Rs 352 per 10 kg respectively.
Similar guidance was witnessed on Malaysia Derivatives Exchange where October delivery contract plunged 3 per cent to 2,367 ringgit ($671) a tonne.
According to the latest estimates by Dorab Mistry, director of the London-based Godrej International, CPO started a powerful recovery in Malaysia and Indonesia from May onwards. Malaysian CPO production is 17.84 million tonnes this year, unchanged from the previous year. Against the annual usage in terms of domestic consumption and exports of almost 19 million tonnes, a stock level of 1.4 million tonnes is a must for the Malaysian palm oil industry to operate normally which represents 25 days consumption.
The output in Indonesia is expected to remain bumper at 21.5 million tonnes from the earlier estimates of 20.87 million tonnes on improved weather conditions.
Therefore, the industry has to absorb the additional Indonesian output of about 640,000 tonnes monthly output which if compensated with the emerging excessive demand of India, can comfortably be offset with.
In contrast, the deficient rainfalls in India, the largest palm oil consumer after China, is estimated to affect edible oilseed and thus the output this oil year (November-October).
According to an estimate, India is likely to witness the driest weather in seven years, threatening integrated source of oil and boosting imports.
Demand from India lifted Malaysian exports 13 per cent in July as stockpiles dropped 5.7 per cent to 1.33 million tonnes, the first decline in three months, according to a Malaysian Palm Oil Board report.
India’s incremental growth in vegetable oils imports has plunged from 66.5 per cent during the first eight months of the current oil year to a paltry 4 per cent in July. Since Indian importers built their inventories maximum to their capacity during the eight month period, the country’s imports slowed July onwards which is likely to continue till October. Total imports in July were 596,024 tonnes as compared to 571,395 tonnes in the corresponding period last year. So far this oil year November 2008 - October 2009, total vegetable oil imports perked up by 55 per cent to 6.42 million tonnes from 4.14 million tonnes in the corresponding period last year.
It is feared that production of kharif crops will suffer a major setback this year as the dryness has partly prevented plantings and will also curb the yield potential massively. This is likely to lead to lower production of oilseeds and reduced domestic oil availability in next oil year. Acreage, as on August 6 of groundnut is worst affected and reported at 35.7 lakh hectare only compared to 45.5 lakh hectare last year at the same time. Soybean acreage marginally increased to 93.7 lakh hectare compared to 91.3 lakh hectare last year.
