07/08/2008 (Reuters, India), New Delhi - Vegetable oil traders are reneging on contracts to import palm oil as global prices slump and the domestic oilseed crop recovers, a senior trade official said on Thursday

These factors could also see the world's second-largest buyer of crude vegetable oil re-impose taxes on imports that were dropped in April, Solvent Extractors' Association of India President Ashok Sethia told Reuters.

Benchmark Malaysian palm oil has sunk 38 percent from a record high in March on worries about slowing demand and rising stocks.

"Amid falling prices, Malaysian traders complain that some Indian traders are backing out of deals and have stopped issuing letters of credit," Sethia said.

"There are expectations that prices will drop further."

India could also allow limited exports of some oils, Sethia said, although the country was never a major exporter.

India imports almost half of its annual consumption of about 11 million tonnes of vegetable oils in the form of palm oil from Malaysia and Indonesia and soyoil from Brazil and Argentina.

Surging prices and worries about food-led inflation led India to drop its 20 percent tax on crude palm oil in April, and cut the levy on refined oils to 7.5 percent from 20.75 percent.

OILS PRICES SEEN FALLING
Estimates that global oilseed output would reach 411 million tonnes in the year to September, up from 382 million tonnes a year ago, would also weigh on the market, Sethia said.

"People are optimistic that crude palm oil will touch $750 by the end of September when new crops arrive in India and other countries too," he said.

On Thursday benchmark futures on the Bursa Malaysia Derivatives Exchange were up 34 ringitt at 2,824 ringitt ($860) a tonne, just off the nine-month low hit on Tuesday.

Domestic prices have also fallen in line with the overseas markets and might drop further on global cues and hopes of better oilseed crop at home, he said.

"There was some concern about soybean production but with the revival in monsoon rains we now believe production will be 10 million tonnes in 2008," Sethia said.

Output of soybean, which is grown only once in a year, was 9.3 million tonnes in 2007.

In the last 15 days, palmolein has dropped to 485 rupees ($11.6) per 10 kg from 540 rupees, while soyoil has fallen to 630 rupees per 10 kg against 670 rupees, Sethia said.

Imports in the last three months of the oil year to October were likely to be 1.5-1.8 million tonnes, almost unchanged from a year ago period as oilseed supplies would improve in coming months, he said.