Soft oils erode palm oil's Asia market

Soft oils erode palm oil's Asia market

SINGAPORE (Reuters): Growing soft oil imports from Brazil, Argentina and the United States are slowly but steadily eroding the share of palm oil in Asia's growing market for vegetable oils, traders and commodity analysts said on Tuesday.

Imports of soft oils by Asia's three leading edible oil importers -- India, China and Pakistan -- are on the rise because the price differential between soft oils and palm oil has narrowed in recent years, they said.

Traders said surging soybean and sunflower output and a steep rise in crushing capacity in the U.S., Argentina and Brazil have badly hit crushing margins, forcing them to sell their produce in the leading Asian markets.

"With African and European markets being saturated, American exporters are trying hard to increase their presence in Asia and take advantage of its growing appetite for edible oils," said a leading Singapore vegetable oil trader.

"They have to sell their produce somewhere. Their crushing margins are very bad now," the trader said.

Industry officials said demand for edible oils in India, China and Pakistan, who together account for more than 70 percent of Asia's oil imports, is growing at an average rate of about 10 percent a year.

"If you look at the figures, two years ago the ratio of palm oil to soft oils imports in Asia was about 80:20. Now it is about 65:35 percent," said a leading industry official.

"Soft oils were about $80 per ton costlier than palm olein in the global markets two years back. Now the price differential is about $10 to $20 per ton only," the official added.

Currently, refined RBD palm oil is quoted at about $295 per ton for August and September in the international market while soft oils are being traded at about $300 to $305 per ton, traders said.

To add to the woes of Asia's leading palm oil suppliers -- Malaysia and Indonesia -- governments in the importing Asian nations are encouraging raw material imports.

"Because of this, countries like China are finding it easier and cheaper to bring in oilseeds from Brazil and Argentina instead of importing oils," said one Singapore trader.

India, the world's leading importer of edible oils, in June raised import duties on edible oils, taking the effective duty on RBD palm olein and refined vegetable oils to 44 percent and for crude oils to 27.5 percent.

China is importing huge quantities of soybeans and was expecting its domestic harvest from October, which was keeping a lid on palm oil imports from Malaysia.

"If you observe these trends, it works out to substantial use of soft oils. In India, with disposable incomes growing fast, there is a gradual shift towards soft oils from palm olein as far as the affluent class is concerned," said one Indian trader.

Commodity analysts said they expected demand for soft oils to rise. The potential for increased oil seeds production in Asia is limited and soft oils offer some more flexibility than palm oil. "As far as business is concerned, soft oils are increasingly preferred in countries such as India because they do not freeze during the winter unlike palm olein," said a leading Indian analyst.

"I will not be surprised if the ratio between palm oil and soft oils become 50:50 in the next one year," the analyst said.