India, the world's top edible oils buyer, is trying to hold off on palm oil purchases this month due to high tariffs and cargo rates as well as slack consumer demand, industry sources said on Wednesday.
But Malaysia and Indonesia would have to open the floodgates for palm oil by September ahead of the all-important Dowel, or festival of lights and imports could flow freely until November as a delayed monsoon slows the arrival of domestic oils, sources said.
The Hindu festival season peaks during Dowel in November, when consumer spending is high. People buy and prepare a variety of sweets, boosting sales of vegetable oils. "By September, the situation should improve because oil stocks will be lower and festival demand will be higher," said a leading oilseeds dealer in Racket, the hub of India's groundnut oil trade, referring to imports.
August is the off-peak season for demand in India. After taking 66,625 tonnes of oil palm products from Malaysia in July, India did not buy a single tonne in the first 10 days of August, cargo records from Malaysian ports showed.
Palm oil exporters in Kuala Lumpur said they were having difficulty securing vessels for the Indian market after freight rates spiked over the last month and New Delhi remained firm in restricting tankers of above 20 years from its waters.
Shipping costs for Malaysian and Indonesian palm oil bound to destinations in China, India, Pakistan, Rotterdam, Red Sea ports and the Mediterranean were $2 to $5 a tonne higher this week from a week ago, as bunker oil prices remained high.
"We've been telling our regular Indian clients we can't find them vessels now to sail palm oil," said an export manager at a foreign-owned commodity house in the Malaysian capital.
"And they aren't complaining because they're in an off-peak season for demand."
Indian traders said buyers were also holding on in anticipation that the government would soon reduce the base price for calculating vegetable oil tariffs. India fixes base prices to check revenue loss due to under-invoicing by some importers.
Global prices of edible oils have been down since June due to good crop weather in key parts of the world. India's base price for RBD Palm Olein is at $552 a tonne, while its C&F price is only $447 a tonne.
For crude palm oil, the base price is $504 a tonne and the C&F is $407. Traders said the huge disparity in the prices was the main reason why India's edible oil imports fell to around 275,000 to 300,000 tonnes in July, compared with 518,000 tonnes a year ago.
"Importers stand to lose money if they book large shipments and at the same time the government plans to reduce base import prices," B.V.Mehta, executive director of Solvent Extractors Association of India, told Reuters.
Traders say India needs to import around 500,000 tonnes of oil in August, but estimate actual purchases at only around 400,000 tonnes because of the high base prices. They said stocks of vegetable oils at Indian ports had already dipped to around 250,000 tonnes from a normally maintained inventory of 400,000 tonnes.
But Diwali would be the turnaround factor for imports, traders said. India bought 634,824 tonnes of palm oils between September and October last year just before Diwali, despite a huge supply of domestic oils.
A delay in monsoon rains was also expected to push this year's oilseed crushing season beyond its traditional October date, giving imports more room until November, dealers said.