Castor Oil Impacted by Exports; Outlook to be Driven by Demand

22 January 2001 00:00  [Source: ICB Americas]

By Doris de Guzman

Castor oil prices declined sharply in the second half of last year, due to decreased export demand. Although pricing has somewhat rallied, industry observers also point to recent erratic pricing, which has further contributed to a more uncertain market.

Prices of castor oil sharply declined in the latter half of 2000 as imports from India decreased substantially with the temporary withdrawal of Brazil and China as buyers, according to some Indian exporters of castor oil. Farmers from both Brazil and China decided to plant more castor seeds due to high prices of castor oil that marked the 1999-2000 marketing year.

The castor oil market was soft late last year, and prices declined from a level of around $900 to $600 per metric ton. Prices had a small surge in September, and the erratic price movement in December continues to prevail in an already volatile market. Castor oil pricing has currently rallied at $640 per metric ton f.o.b. India.

Indian exporters blamed the decline on the sluggishness of export demand as well as the erratic price movement that further depressed the Indian castor oil market. "Current prices prevailing in India appear to be somewhat unrealistic due to bearish sentiments and speculative activities in the market trade, thus prices sharply declined," says Shvetal Shakil, general manager of Agri Products Exports at Mumbai, India-based Hindustan Lever Ltd. (HLL), a subsidiary of Unilever.

HLL is India's largest exporter of castor oil. The company's export portfolio consists of branded soaps and detergents, personal care products, tea and coffee, castor oil and its derivatives, meals/extractions, leather footwear, marine products, carpets, chemicals and fatty acids.

Almost 85 percent of castor oil produced in India is exported. The US is the leading importer followed by Europe, Japan, China and Brazil. Indian production estimates for 2000 were roughly 825,000 tons. US imports of castor oil, as of October last year were 3,595 metric tons compared to 3,915 metric tons in October of 1999, according to the US Department of Agriculture. US imports of castor oil in 1999 were valued at about $41 million with total global demand valued at more than $400 million.

An upward spike in US castor oil pricing late last year was blamed on the rising cost of crude oil as "shipping costs for castor oil have gone up due to increasing energy costs," says one US derivatives producer. "Although there is no problem with supply, as global demand is still being met from India and Brazil's good output, [which] increased India's excess oil stocks from the previous season," the producer notes.

Castor oil and its derivatives are used as additives and specialty chemicals, which makes it a growing imported commodity. Components of castor oil, known as hydroxy-fatty acids, are essential for making high-quality lubricants for heavy equipment such as jet engines. Castor oil and its derivatives are also used in paints, coatings, plastics, anti-fungal compounds, shampoos and cosmetics as well as in food, textiles and electronics.

With the usual uncertainty of the Indian castor crop, the outlook for the castor oil market still remains to be seen although market observers in India speculate that prices will become stable as pressure on supplies is likely to be felt in the latter half of the year.

"Hopefully, castor oil price would remain stable around $666 to $675 as trade in India expects pressure of supplies to decline by March or so, with the prolonged dry spell in most part of Gujarat, the key castor producing state in India," notes Mr. Vakil. "The progress of the monsoon in the Indian sub-continent would be the key determining factor, but prices will also strengthen due to aggressive consumption of American and European traders and consumers," he adds, also pointing to a revival of domestic demand in India.

India's consumption of domestic castor oil decreased last year as the country's industrial consumption prefers the much lower prices of palm oil.

CARGILL has reported $174 million in earnings for the second quarter ended Nov. 30 last year, up 20 percent from $145 million earned in the same period a year ago. That brought earnings for the first six months of fiscal 2001 to $346 million.

GLYCERINE--The Dow Chemical Company reports its Optim Glycerine 99.7 percent USP, manufactured in Freeport, Tex., meets the specifications set forth by the European Pharmacopoeia (EP) for pharmaceutical ingredients. This is in addition to the long-standing certification to the specifications of the US Pharmacopoeia (USP).

OLIVE OIL--Cala Corporation has purchased a 51-percent interest of Mancini I.M.O.I.L. Olive Oil Company through a letter of intent signed by both parties. The annual sales of Mancini I.M.O.I.L. are roughly $20 million, which represents both US and European markets.

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