Palm oil's widening discount to soy oil expected to boost fourth-quarter demand
11/10/2022 (The Edge Markets), Mumbai - Global palm oil purchases are rising this quarter, as buyers take advantage of the tropical oil's widening discount to rival soy oil, which should entice price-sensitive consumers and boost biofuel usage, according to senior industry officials.
The highest discount in a decade would divert demand towards palm oil from soy oil and sunflower oil, and help top producer Indonesia and Malaysia bring down stockpiles that were weighing on the benchmark futures.
Palm oil for shipment to India in November is being offered at US$941 (RM4,397) a tonne including cost, insurance and freight, compared with US$1,364 for crude soy oil, according to six palm oil traders that participate in the market. That US$423 discount is the most in 10 years, the dealers said.
Sunflower oil is being offered at US$1,400 a tonne, the dealers said. A year ago, palm oil's discount to soy oil was around US$100 per tonne.
"Palm oil demand has been rising from almost every country. Traders are buying more either for food purposes or for biofuels," said Pradeep Chowdhry, the managing director of Gemini Edibles and Fats India Pvt Ltd, a leading Indian importer.
Top palm oil producer Indonesia's efforts to bring down stockpiles by increasing exports are keeping prices under pressure for the time being, even as rival oils are moving higher, said a Mumbai-based dealer with a global trading firm.
Indonesia's palm oil stockpiles at the end of July had risen to 5.91 million tonnes from around four million tonnes at the end of 2021, as Jakarta imposed restrictions on exports in the first half of 2022.
Palm oil's hefty discount is now prompting key buyers, such as India, Pakistan, the European Union and Bangladesh, to increase purchases for shipments for the quarter ending in December, said a Mumbai-based dealer with a global trading firm.
India's palm oil imports in September jumped to 1.2 million tonnes, the highest in a year, and the country could import three million tonnes in the fourth quarter, the dealer said.
Biofuel demand
The rebound in global energy prices, which rose further after a decision by major oil producers to cut output, has also increased palm oil consumption for biofuels.
"Lots of palm oil is getting consumed for energy purposes, since there is tight supply of heating oil and diesel in Europe," said Chowdhry of Gemini.
European buyers are making palm oil purchases for November and December shipments, as blending palm oil has become profitable because of the rally in energy prices, said a senior official with a Malaysian palm oil producer.
Soy oil prices have been supported by high consumption in the US for biodiesel, and that is keeping soy oil's premium intact, the official said.
Soybean oil is used as a feedstock to produce biodiesel.
In the past few months, China's palm oil buying was lower than last year, but this could jump in the coming months, as stocks are running low, said a Kuala Lumpur-based palm oil trader.
"Chinese buyers have started making inquiries. They are interested in palm oil since other oils are very expensive," the dealer said.
Robust shipments in the fourth quarter will bring down stocks in producing countries, and that will eventually move palm oil prices higher, said Chowdhry of Gemini.
"The current discount would go with falling stocks, and we could see a normal discount of around US$200," he said.