Discount to sunflower oil boosts palm oil demand in India

An oversupply of palm oil on the global market and a widening price discount to competing vegetable oils are encouraging purchases by India and other major importers. According to Aashish Acharya, vice president of Indian company Patanjali Foods, the discount on palm oil versus sunflower oil has widened to around $300/mt, while the discount versus soybean oil has reached $100/mt.

Over the past few weeks, buyers have been purchasing around 20–30 thsd mt of palm oil daily. In India, demand for edible oils typically rises by 10–15% ahead of the Diwali festival, and importers are favoring palm oil this year due to its price competitiveness. Disruptions to sunflower oil supplies from Ukraine and Russia following attacks in the Black Sea region have provided an additional boost to demand.

Demand has also strengthened in China, Europe and Africa, contributing to a sharp increase in Malaysian palm oil exports in October. According to AmSpec, shipments from the country rose by 78.4% in October 1–20 compared with the same period of the previous month. Increased purchases could help Malaysia reduce its inventories, which have reached a record high.

Meanwhile, large inventories continue to weigh on Malaysian palm oil futures despite stronger physical demand. According to Preston McKenzie, senior trader at Avere Commodities, buyers can purchase palm oil at a substantial discount to the exchange benchmark, meaning stronger buying does not necessarily translate into a corresponding rise in futures prices. Market participants are also watching the possibility of a temporary suspension of Malaysia’s export duty on crude palm oil and a potential reduction in Indonesia’s levy.

McKenzie expects India’s sunflower and soybean oil inventories to begin declining over the next six to eight weeks, making room for additional palm oil imports. Meanwhile, the anticipated strengthening of El Niño could constrain supplies next year, although high inventories remain a bearish factor for the market for now.

Tags: India, palm oil, imports, sunflower oil, soybean oil, prices