MARKET DEVELOPMENT
PSUs cooking oil import plan
PSUs cooking oil import plan
8/6/07 (The Economic Times) - NEW DELHI: If the government wants to bring down vegetable oil prices, it has to simply give the nod. Public sector trading companies and large edible oil companies are discussing the possibility of refining and packing imported vegetable oil for consumers scalded by a boil in prices.
STC, MMTC, PEC and Nafed are doing the ground work just in case the government decides to consider a proposal to allow them to import up to 1 million tonne vegetable oil and partly share any loss they incur. These companies are allowed to freely import vegetable oil on a commercial basis.
While MMTC floated a tender on June 6 inviting expression of interest from private players, PEC is learnt to be approaching private companies for quotes. STC may also explore the option of empanelling foreign exporters of edible oils.
“Importing crude oil in bulk is easy. But it takes time to find companies willing to refine and package it. That spade work has to be done in advance if we wish to avoid delay,’’ said an analyst.
The Centre has permitted these PSUs to import pulses on the same basis and the move has successfully cooled down local prices. When a similar proposal for vegetable oils was first mooted by the consumer affairs ministry a couple of months ago, it was shot down because there was no urgent need for subsidised vegetable oil imports. However, things are very different now.
Vegetable oil prices have almost doubled in the last few months, moving from $440 per tonne in February to a record $835 per tonne in June. There are few signs of any cooling off unless demand gets rationed in China and India.
Normally, volatility in international vegetable oil prices is seamlessly passed on to the local Indian market and importers continue to do deals. But this time this parity is missing. Local Indian prices are still substantially lower than global prices. So any one who imports oil would be buying expensive and selling cheap. That has obviously deterred large traders.
Companies are further apprehensive of a correction in the Malaysian market and a cut in Indian import duties. That has made them even more cautious and reluctant to take large positions.
With physical supplies dwindling, it is almost certain that India’s prices will have to eventually move up to global levels. Traders will then again start importing oil. But to bridge this time lag, the government may have no option but to encourage PSUs to undertake imports and keep the market adequately supplied. Since importing without parity would lead to losses, the government would have to per force offer some kind of subsidy.
Though the terms of the likely proposal are still not known, these PSUs are asking large edible oil companies to quote a price for refining and packing palm oil in 1-litre and 5-litre packs. However, the big hurdle is that there is no spare capacity available in the country for these PSUs to contract. The total capacity available in India for converting CPO into refined oil and packaging it in small packs barely exceeds half-million tonne. Spare capacity may still be available for soya.
“We have received a letter from STC asking for a quote to convert CPO into refined oil and package it. But we have not responded because we have no spare capacity,’’ said an official in a large Mumbai-based edible oil refining company.
The PSUs are still hopeful. “Given the high risk right now, some refiners are approaching us themselves. They want us to import the oil, while they refine and pack it for a fixed rate. Basically they are looking for a way to hive off the risk and get us to finance them,’’ said an official.
STC, MMTC, PEC and Nafed are doing the ground work just in case the government decides to consider a proposal to allow them to import up to 1 million tonne vegetable oil and partly share any loss they incur. These companies are allowed to freely import vegetable oil on a commercial basis.
While MMTC floated a tender on June 6 inviting expression of interest from private players, PEC is learnt to be approaching private companies for quotes. STC may also explore the option of empanelling foreign exporters of edible oils.
“Importing crude oil in bulk is easy. But it takes time to find companies willing to refine and package it. That spade work has to be done in advance if we wish to avoid delay,’’ said an analyst.
The Centre has permitted these PSUs to import pulses on the same basis and the move has successfully cooled down local prices. When a similar proposal for vegetable oils was first mooted by the consumer affairs ministry a couple of months ago, it was shot down because there was no urgent need for subsidised vegetable oil imports. However, things are very different now.
Vegetable oil prices have almost doubled in the last few months, moving from $440 per tonne in February to a record $835 per tonne in June. There are few signs of any cooling off unless demand gets rationed in China and India.
Normally, volatility in international vegetable oil prices is seamlessly passed on to the local Indian market and importers continue to do deals. But this time this parity is missing. Local Indian prices are still substantially lower than global prices. So any one who imports oil would be buying expensive and selling cheap. That has obviously deterred large traders.
Companies are further apprehensive of a correction in the Malaysian market and a cut in Indian import duties. That has made them even more cautious and reluctant to take large positions.
With physical supplies dwindling, it is almost certain that India’s prices will have to eventually move up to global levels. Traders will then again start importing oil. But to bridge this time lag, the government may have no option but to encourage PSUs to undertake imports and keep the market adequately supplied. Since importing without parity would lead to losses, the government would have to per force offer some kind of subsidy.
Though the terms of the likely proposal are still not known, these PSUs are asking large edible oil companies to quote a price for refining and packing palm oil in 1-litre and 5-litre packs. However, the big hurdle is that there is no spare capacity available in the country for these PSUs to contract. The total capacity available in India for converting CPO into refined oil and packaging it in small packs barely exceeds half-million tonne. Spare capacity may still be available for soya.
“We have received a letter from STC asking for a quote to convert CPO into refined oil and package it. But we have not responded because we have no spare capacity,’’ said an official in a large Mumbai-based edible oil refining company.
The PSUs are still hopeful. “Given the high risk right now, some refiners are approaching us themselves. They want us to import the oil, while they refine and pack it for a fixed rate. Basically they are looking for a way to hive off the risk and get us to finance them,’’ said an official.