New Delhi, June 20 - Prices of vegetable oils in India, the world's biggest importer after China, are expected to ease only by October when the new soybean crop arrives in markets despite efforts to increase supplies, traders said.
That's bad news for India's government with the latest data showing inflation at a 13-year high above 11 percent in early June despite a string of supply side measures by the government.
These included abolishing import duty on crude vegetable oils and slashing the levy on refined oils to 7.5 percent, and the issue of import tenders for oils to be supplied at subsidised rates to the poor.
Despite that traders say domestic prices of RBD palmolein have touched 58,700 rupees ($1,368) per tonne, up from 55,600 rupees a month ago, while those of refined soyoil have surged to 67,500 rupees a tonne, up 7,000 rupees in the last month.
Friday's inflation data showed the edible oils sub-index had risen an annual 14.3 percent.
"The government has exhausted all the tools it had to check domestic prices of vegetable oils," said Shardul Sharma, an analyst with Sharekhan, a domestic brokerage.
"The only silverlining would be a good monsoon, which is expected to help farmers harvest a record output in 2008."
Govindbhai Patel, a leading oilseed trader from the western state of Gujarat, has said soybean output was expected to rise 15 percent, or 1.5 million tonnes, from last year's 9.5-10.0 million tonnes.
RAINS TO RESCUE
"Thankfully, the monsoon has been good so far but rains have to be well-distributed," said B.V. Mehta, executive director of the Solvent Extractors' Association of India. "In 2003, the monsoon began on a good note but lost steam later."
Mehta said international prices of soyoil have gone up by $150 a tonne to $1,510 a tonne in last one month, while those of palm oils by $50 to $1,190 a tonne, largely due to high crude oil prices and diversion for biofuels.
"There is hardly anything the government can do now. The only thing it can do is to increase supplies," Sharma said.
Mehta said the government's decision to put a ceiling on the size of inventories of vegetable oils individuals and firms could build up had led to a fall in imports, squeezing supplies.
India imported 302,345 tonnes of vegetable oils in May, down 38.8 percent from the same month last year, according to Mehta's association.
India imports almost half of its annual domestic consumption of about 11 million tonnes of edilbe oils. It buys palm oil from Malaysia and Indonesia and soyoil from Brazil and Argentina.