Date:31/05/2005 URL: http://www.thehindubusinessline.com/2005/05/31/stories/2005053100361000.htm

Back Vegoil imports continuing despite losses, lower domestic prices

G. Chandrashekhar

Mumbai , May 30

DESPITE negative margins and unattractiveness of edible oil imports following continued disparity between domestic and international prices, arrivals into the country have not slackened. If anything import volumes are set to rise.

It is an anomalous situation, but does not hurt the consumer who can be assured of sufficient availability of cooking oils in the coming months.

Contrary to forecasts made in early March, palm oil market has stubbornly remained firm notwithstanding rising production and inventory levels.

Crude palm oil has generally ruled above 1,400 Malaysian ringgits a tonne in last two months. Producers are successfully holding on to the price because of good demand and favourable fundamentals.

For Indian importers, business is turning into a losing proposition. Margins are not only squeezed, but have turned negative as local prices are quoted lower than landed cost, whether of crude palm oil or refined palmolein.

However, in spite of losses, importers continue to trade because that is the only way to pay for past imports (previously contracted with a credit period for payment).

Many Indian importers will potentially sink without a trace if credit is denied or imports dry up for any reason.

They are forced to continue their operations despite losses with the hope of making it up some time in future.

According to a trade intermediary, traders lose around Rs 800 a tonne on import of refined palmolein.

While the landed cost, inclusive of customs duty and related expenses, works out to Rs 37,300 a tonne, ex-port deliveries are quoted at Rs 36,500 a tonne or thereabouts.

Importers of crude palm oil are saddled with huge unsold stocks of palm stearine for which the marketing outlet is rather limited. No wonder, the product lands up at unintended places. There are reports that palm stearin is unauthorisedly incorporated in vanaspati; but even this outlet is said to be saturated now.

Rising vanaspati imports from Sri Lanka under the trade treaty is also a factor affecting the competitiveness of palm oil import. Tanks with unsold stocks of stearine mean additional cost and cash flow constraints for importers.

Importers are therefore switching to refined palmolein, a readily marketable oil that does not involve the problem of stearine disposal.

Vegetable oil imports in March were approximately 3.5 lakh tonnes (lt), which increased to 5.5 lt. in April.

For May, imports are estimated at about 4.5 lt.