Last Updated : 18 February 2010 at 15:50 IST
Why global palm oil market is bullish and expanding
There are several reasons why palm oil has entered a bullish phase. Demand from China and India is on the rise and short term gains in soybean and crude oil prices also give support to palm oil. Cost of production is lower compared to other oil seeds and annual yields are higher.
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According to Solvent Extractors Association of India, the edible oil imports imports in November 2009 to January 2010 period has witnessed a rise of 10% and palm oil imports accounted for 1439.705 metric tonnes compared to 1399,768 metric tonnes in corresponding period in 2008, thereby recording a growth of 2.85% on annualised basis.
Indonesia exported 5.6 million tons of palm oil to India last year, or 36 percent of total shipments, while overseas sales to China were 2.4 million tons, according to Bloomberg data. April-delivery palm oil gained 1.6 percent to 2,620 ringgit ($773) a metric ton on the Malaysia Derivatives Exchange, after gaining as much as 2 percent earlier when trading of the benchmark contract resumed after a two-day holiday marking the Chinese Lunar New Year.
Recent gains in soybean and crude oil prices also give strength to palm oil prices with Indonesia's non-oil-and-gas exports targeted to grow between 7 percent and 8.5 percent this year, Bloomberg reported. Higher palm oil prices may boost profits for producers, potentially adding to export earnings from Indonesia and Malaysia, the world’s top growers. Palm oil prices advanced 52 percent last year.
Meanwhile, the Global Industry Analysts (GIA) in a report pointed out that there has been a strong increase in global palm oil trade in the last two decades. The world market for palm oil is projected to exceed 100 million tonnes by the year 2015. The increasing standard of living in regions of the Third World is driving the demand for palm oil, which unlike annual food crops is ideal for majority of soils vulnerable to leakage in the damp tropical regions. Indonesia and Malaysia alone meet, though not entirely, the largest part of the global demand for palm oil, GIA report said.
Palm oil, a kind of edible vegetable oil, is derived from the pulp of the fruit of the oil palm tree. Over the past 20 years, the share of palm oil in the worldwide vegetable oil market has grown two-folds along with a strong increase in global palm oil trade. This indicates that even the palm oil consumption has increased significantly worldwide, the GIA report titled "Palm Oil: A Global Strategic Business Report" said. A few factors for the rapid growth of oil palm include: palm oil production costs that are low in comparison to other crops of similar nature, and annual yields or oil produced from a hectare of palm oil plantation is more than that produced by other types of vegetable oils.
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Palm oil is extensively used by both the food industry and the non-food sectors. Within the food industry, palm oil finds use in confectionery fats, margarine, shortenings, and vanaspati production and for industrial and domestic cooking and frying purposes. Natural palm oil is free from any trans fats, which makes it a healthy fat substitute for margarine, bakery shortenings and confectionery fats preparations. Within the non-food sectors, palm oil finds use as a raw material in oleochemicals, fatty acids, fatty alcohol, glycerol, and as by-product for the production of pharmaceutical, industrial, household and cosmetic products.
China dominates the world palm oil market, in terms of consumption, as stated by the new market research report on palm oil. China does not produce palm oil and is completely dependent on imports to meet the domestic demand. The country's vegetable oil consumption is at its peak during the festive seasons and holidays.. In India, the palm oil consumption is on a rise mainly due to lower prices as compared to its competing products. The country's palm oil trade hinges on demand-supply ratio, oilseed production, prices of other imported / domestically produced oils, and government trade policies, among other factors. In Malaysia, which is one the largest producers of palm oil the world, the domestic market for palm oil continues to grow driven by increased demand from sectors such as cosmetics and food processing industries.
Palm oil is considered as a feasible source for conversion to biodiesel. Despite gaining consumer recognition, scientific expertise, and technical development, biodiesel is not in wide commercial use. The conversion however has been criticized by various NGOs and environment groups across the world mainly due to environmental concerns including deforestation, extinction of the orangutans and the arising dispute for usage of palm oil for fuel versus food, as converting food crops into fuel would increase the count of malnourished people considerably in the whole world.
Meanwhile, Indoneisa will be reviewing its policy on palm oil exports levy in a bid to support plan to increase the domestic palm oil industry. It plans more value addition and to provide support for downstream processing, Bloomberg report quoting Minister Pangestu said.
Indonesia since 2008 has set export duties based on the average price of palm oil in Rotterdam. The country imposes a 1.5 percent duty on overseas shipments of crude palm oil if the average price reaches at least $700 per ton, a 3 percent tax if it ranges between $751 and $800 and will rise until a maximum of 25 percent if the price reaches $1,250 per ton. (With inputs from PRWeb)
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