Edible oil tags seen buoyant on biodiesel, biofuel thrust

Alternate energy resources get a serious look-in

With rising crude prices and emergence of bio-diesel and bio-fuel as good energy resources, edible oil prices are seen as competitive, industry experts said.

Crude palm oil prices in the oil year 2005-06 (October-September) on the Kuala Lumpur-based Bursa Malaysia Derivatives is likely to be in the 1,400 - 1,600 Malaysian ringgit range, said Dorab Mistry, director with Godrej International Ltd.

"As the October-February period advances, prices will creep towards the upper end of this range. This is likely to put RBD Palmolien in the range of $450-450 (freight on board); crude palm oil about $370-420 (FOB) or $425-475 (cost, insurance & freight, ex-Rotterdam), and crude soyoil about $460-500 (FOB)."

Most industry members, however, reckon the estimates favour sellers rather than the likely market price. "The 200 ringgit range in an undervalued palm oil market is too large. It is always clearer in giving a range for three month perspective."

On a three-month perspective, Cargill India's director Siraj Chaudhry said, "BMD crude palm oil futures is likely to be about 1400-1450 Malaysian ringgits in the October-December period."

On increasing global bio-diesel capacity, Mistry said, "US industry is showing the way to the world now". He estimates that current bio-diesel capacity in the US would require 6 lakh tonnes of soyoil on an annual basis.

"In 2005-06, the new capacity requiring an additional 6.6 lakh tonnes of soyoil with be commissioned and an additional capacity of 3.15 lakh tonnes soyoil is slated to come onstream by 2006-07."

"In other words, the total bio-diesel capacity coming onstream by the end of 2006-07 will require 1.6 million tonnes soyoil," he added.

This is likely to give bulls a boost for the US Department of Agriculture has estimates American soyoil stocks at 2006-07 end at only 7.25 lakh tonnes. This would, eventually, lead to a supply-demand mismatch for the superpower, forcing it to look out for other sources to fuel its bio-diesel capacity, industry said.

While the oil palm plantations are expected to see prosperity in the next two years and also see a phenomenal rise in acreage in Indonesia, followed by Malaysian states like Sarawak and Sabah, Mistry pointed out towards growth in global demand outpacing the supply, which again is likely to keep the prices high.

Earlier, on the sidelines of GLOBOIL 2005 seminar, James Fry, managing director of London-based LMC International, however, said, "Year-on-year edible oil prices have declined by about 2.5% and this is likely to continue." He said it will be too early to talk about the demand-supply mismatch.