India Edible Oil Imports May Slow as Inventory Surges (Update1)

June 2 (Bloomberg) -- India, the world’s second-biggest buyer of vegetable oils, may slow imports in the coming months after stockpiles surged on record purchases, Govindlal G. Patel, director of Dipak Enterprise, said.

Edible oil reserves probably rose 55 percent to 1.7 million metric tons in the seven-month period ended May, topping normal levels of 1.1 million tons, Patel said in a phone interview from Rajkot in western India today.

Lower purchases by the South Asian nation may help cool a 56 percent rally in crude palm oil in Malaysia this year. Prices of the commodity have surged as soybean crops decline in Brazil and Argentina, and inventories in the U.S. are forecast to reach a five-year low. Palm oil and soybean oil are substitutes.

“India will have to reduce the pace of imports as off-take has slowed in the local market,” said Patel, who has traded the commodity for four decades. “The rush to buy large quantities of crude palm oil has slowed.”

August-delivery palm oil rose 0.6 percent to 2,640 ringgit a ton at the 12:30 p.m. break on the Malaysia Derivatives Exchange. Earlier, futures gained as much as 1 percent.

The price may reach 3,000 ringgit by August as a drop in soybean oil supplies boosts demand for palm oil, Patel said.

India may have purchased more than 800,000 tons of edible oils last month, including 700,000 tons of refined and crude palm oils, Patel said. Imports in May 2008 were 302,345 tons, data from the Solvent Extractors’ Association of India shows.

Cooking oil imports surged 82 percent in the six months to April 30 after the government scrapped import tax amid a decline in local oilseed output.

Duty Free

India in March scrapped a 20 percent duty on imports of crude soybean oil four months after it was imposed to shield oilseed growers. Crude palm oil can be imported tax-free.

Production of oilseeds may drop to 28.12 million tons in the year ending June, down from 29.75 million tons a year earlier, the agriculture ministry said last month.

Edible oil imports may exceed 8 million tons in the year to October, from 5.6 million tons a year ago, Patel said. The nation may buy about 500,000 tons of non-edible vegetable oils, he said.

India relies on overseas purchases to meet almost half its edible-oil demand. It buys palm oil from Indonesia and Malaysia, and soybean oil from Argentina and Brazil. Palm oil accounts for almost 90 percent of all edible oil imports.