13/2/07 (Daily Times) KUALA LUMPUR -  Indonesia’s palm oil sales to India will surge this year as imports of vegetable oils to the South Asian nation hit record levels, a leading industry official said on Monday.

With India’s economy expected to grow at more than 9 percent the fastest in 18 years demand for vegetable oils could grow at an average 6 percent or more annually in the next few years, said BV Mehta, executive director of the Solvent Extractors’ Association of India.

And with New Delhi keen to encourage imports of crude palm oil to help boost usage of its idle refining capacity, Indonesia stands to gain the biggest slice of the pie, he added.

“Indonesia will be the biggest beneficiary because India will largely remain a crude palm oil market,” Mehta told Reuters in Kuala Lumpur ahead of the annual palm oil meeting organised by the Bursa Malaysia Derivatives exchange.

The conference opens later on Monday in the Malaysian capital and leading industry analysts, such as Dorab Mistry, James Fry and Thomas Mielke, are expected to speak on the price outlook.

Mehta said India, the world’s second-largest oil buyer, after China, is forecast to import close to 20 percent more of vegetable oils in the year ending October 2007, rising to about 6.4 million tonnes, from around 5.4 million tonnes a year ago.

Out of that, palm oil imports are expected to be 4.9 million tonnes. Imports of soybean oil from Brazil and Argentina are expected to be 1.3 million. The remaining will be sunflower oil.

Production shortfall: India’s oilseeds output is expected to decline by 4 million tonnes to 24 million tonnes this year as farmers shift to other crops like wheat, cotton and pulses, which have yielded higher returns last year.

This, in addition to rising imports at higher world prices, could keep domestic prices of vegetable oils firm and add to inflationary pressures in India where the government is struggling to rein in food prices.

“We are not going to see any oilseed supplies until the new crop comes in November and we are already feeling the pinch because of a shortfall in domestic supplies,” Mehta said.

India charges an import duty of 60 percent on crude palm oil, compared with 67.5 percent on refined palm oil, encouraging buyers to bring in more of crude vegetable oils.

Indonesia, the world’s second-largest palm producer, sells mainly crude palm oil, unlike Malaysia which exports mainly refined oil to safeguard its domestic refining industry. Mehta said world palm oil prices are likely to remain firm as the expansion of the biofuel industry continues.

“Prices are holding firm, but a further rise will depend on how much of edible oil goes from the food basket to the biodiesel sector and if it is 10 percent or more, I think palm oil prices are going to jump,” he added.

Crude palm oil prices jumped 40 percent last year and are still holding on to the gains despite a global flight from risky assets as demand from food and fuel sectors surges.

The benchmark third-month May contract on the Bursa Malaysia ended the morning session on Monday at 1,961 ringgit ($560) per tonne, down 2 ringgit from Friday’s close, as the market awaited views from the conference.

Mehta said India is unlikely to emerge as a big biodiesel producer in coming years because of a lack of availability of plentiful feedstocks.

“With such high price you cannot think of using palm oil. And local feedstocks from sources like Jatropa will take two to three years to develop.”

India has around 12 small scale biodiesel plants under construction out of which three units had been commissioned but yet to start production, he said.

“These are very small plants. Building large plants look difficult at the moment because getting adequate feedstock is going to be a problem, with prices remaining high,” he said. reuters