7/8/07 (The News) KUALA LUMPUR: Asia’s vegetable oil demand for the festival season has been dampened by surging prices and a seasonal upswing in production from Southeast Asia could result in swelling stockpiles.

Buying for the holy Muslim month of Ramadan has been subdued from South Asia and the Middle East while China has cut down imports as it focuses on soybeans, traders said. At the same time, Malaysia and Indonesia, the world’s top palm oil producers, are in the middle of a cyclical upturn in supplies after months of slowdown which sent prices to record levels in June.

“Consumption is going down, poor people are not able to adjust to such high prices so they have reduced consumption,” said B V Mehta, executive director of Solvent Extractors’ Association of India. Mehta said India bought around 600,000 tonnes of edible oil, mainly crude palm oil from Indonesia and importers were finding it difficult to dispose the stocks. “Off-take has reduced because this price is unbearable for the poor people.”

Traders said buying for month-long Ramadan festival, which starts around mid-September, is expected to finish within a week. “They have to buy now, in a week or so this demand will taper off,” said an official with a trading house that supplies to the Gulf region.

“I have some vessels lined up for this week but after mid-August there is nothing much happening.” China’s palm oil imports from Malaysia fell 35 per cent in July to 303,585 tonnes compared with the same month in 2006 as it bought more soybeans.

“China is going more for soybean imports, from Argentina and Brazil, which was cheaper,” said one trader in Sabah state on the Borneo Island. “But then, soybean oil has also been rising because of the weather play, our only hope is that the Mid-Autumn festival will increase demand for palm oil.”

Palm oil production, which has been slow this year, is picking up and reserves in Malaysia are expected to have risen 5.2 per cent to 1.26 million tonnes at the end of July, a Reuters poll showed.

“I won’t be surprised if we have double-digit growth because the rains that we had a couple of weeks ago are really encouraging,” said another official with a plantation house. “From now onwards we will see very good production.” But dealers said there was no scope for a big decline in palm oil prices, which will be supported by crude oil hovering just below $75 a barrel.

“Prices will come down, they can’t stay at such high levels, but we must look at crude oil which will continue to support the market,” the plantation official said. “The market will be very comfortable between 2,400 and 2,500 ringgit a tonne.”

Malaysian crude palm oil futures fell almost 2 per cent on Monday in lacklustre trade, dragged down by declining prices of rival soybean oil and crude oil. Losses were deepened by worries that rising export demand might not keep up with the upswing in production for the coming months, traders said.

By the midday break, the benchmark October contract on the Bursa Malaysia Derivatives Exchange fell 47 ringgit, or 1.8 per cent, to 2,535 ringgit ($730) per tonne. But higher vegetable oil prices are also encouraging farmers in India, which is struggling to boost stagnating oilseed production. “It is a blessing in disguise for our farmers,” a New Delhi-based trader said. “They will use better inputs so that they can get better productivity, they have never seen such good prices.”