India substitutes palm oil imports with alternative soft oils

London — The diminishing premium of higher-protein oils such as sunflower and soybean oil to palm oil is changing trade flows into India.

India's palm oil imports in November-January, the first quarter of the 2019-20 Indian marketing year dropped 13.5% on the year to 2,004,657 mt, as the narrowing spreads of vegetable oils stimulate Indian demand for alternative oils, the Solvent Extractors Association of India reported last week.

The "reduction in spread between palm oil and soft oils, makes soft oils import more viable," the report said.

India's imports of palm oil have also been hampered by the diplomatic dispute with Malaysia, after Malaysian Prime Minister Mahathir Mohamad criticized Indian policy over the Kashmir region and citizenship laws.

Consequently, the Indian government encouraged domestic importers to cease purchases of Malaysian crude palm oil. Furthermore, imports of refined palm oil were reduced because refined palm product imports were moved to a "restricted" status, meaning Indian importers require licenses to import.

"Licenses seem to be issued on a first-come, first-served basis and there are around 100 applications pending. However, there is no clear guideline set by the government to issue the licenses as yet," said a source from an India-based vegetable oil manufacturer.

The result has seen a shifting of trade flows as India, the world's largest importer of palm oil, turn its gaze to Ukrainian and Russian sunflower oil as well as Argentine soybean oil.

India's Q1 sunflower oil imports increased 26.8% year on year to 762,922 mt and soybean oil imports have risen 24.9% on the year to 593,448 mt.

Imports of soft oils accounted for 40% of total edible vegetable oil imports in Q1, up from 32% a year earlier. Consequently, palm oil accounted for 60% of total imports, down from 68% in Q1 2018-19.

"In January, India booked a good amount of Ukrainian and Russian sunflower oil and Argentinian soybean oil. Prices of palm oil and sunflower oil are neck-and-neck at Indian ports and, with sunflower oil considered the premium product, Indian demand for sunflower oil has increased," said head of research Sunvin Group, India, Anilkumar Bagani. "If the spread is narrowed then Indian buyers prefer Argentinian soybean oil to Black Sea sunflower oil because it is degummed and easier to refine."

Palm oil has traditionally been the cheaper vegetable oil product, but rallying palm oil prices in calendar Q4 2019 caused vegetable oil prices to converge.

The sinking export availability of palm oil from Indonesia and Malaysia, with low production and growing domestic consumption to meet higher biodiesel mandates, caused palm oil prices to surge.

Due to the bullish fundamentals in the palm oil market, this narrow spread between vegetable oils could mark a permanent shift in the vegetable oil complex.

"The time has gone for palm oil to be $100-$150/mt cheaper than alternative soft oils", said Bagani said.

According to data from the US Department of Agriculture, India is forecast to import 9.75 million mt of palm oil, 3.5 million mt of soybean oil and 2.6 million mt of sunflower oil in the 2019-20 marketing year.