FocusRising palm oil prices make competing soy oil more attractive

06 April 2010 05:03  [Source: ICIS news]

By Serena Seng

SINGAPORE (ICIS news)--Recent hikes in crude palm oil prices have narrowed the price gap between palm oil and soybean oil that is likely to have negative impact on the palm oil industry, traders said on Tuesday.

Traditionally seen as competing products for the same export markets in Europe, the US and China, particularly as feedstock for biodiesel, the recent price hikes of palm oil had rendered soybean oil more attractive to buyers, they said.

Buyers preferred soybean oil because of its versatility and ability to be used as a vehicle fuel in all weather conditions unlike palm oil, industry sources said.

Palm oil is more suitable for use in summer due to its high cold filter plugging point, which tends to clog up the engines of vehicles in cold weather, they added.

Soybean oil premium over palm oil was currently around a mere $7-10/tonne (€5-7/tonne) compared with more than $100/tonne in the November-January period, traders said.

The gap started to narrow in late January when prices of crude palm oil started increasing due to poor weather conditions. They rose from M$2,468/tonne ($731/tonne) in early December to M$2,650/tonne in early January and to M$2,628/tonne as on 1 April, traders said.

The price gap between palm oil and soyoil could further narrow in the coming months, due to a bumper harvest of soya bean in Argentina in February, traders said.

This could prompt more buyers to switch to soyoil in the coming weeks for forward month purchases, they added.

Crude soyoil was last offered at $805/tonne FOB (free on board) Argentina and Brazil while refined, bleached and deodorised palm olein was offered at $812.50/tonne FOB Malaysia on 1 April, according to traders.

James Fry, a U.K.-based industry analyst, said in a conference recently that the palm-soy price reversal might limit the rise in palm oil prices, even with palm inventories expected to show a seasonal decline in the next few months.

Some market participants also believed that the prices of palm oil need to decline in order for it to remain competitive in the global biodiesel market, or else buyers would switch to other oils.

Palm inventories fell 11% from January to 1.79m tonnes in February, while output was at 1.16m tonnes, 13% lower than the previous month, according to data from the Malaysian Palm Oil Board.

On the other hand, import permits were required for soya bean oil of Argentina origin into China as there is no free trade agreement between the two countries, traders said. This could give palm oil a slight advantage in the China market for now though this was unlikely to remain for long if price gap narrowed in the coming weeks, traders added.

($1 = €0.74 / $1 = M$3.38)

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By: Serena Seng

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