The global fall in vegetable oil prices in July has sparked a recovery in physical demand noticeably for biofuel production, Hamburg-based oilseeds analysts Oil World said on Tuesday. "The steep price setback seen in the past few days suggested that demand rationing had been overdone at the recent price highs," it said.
"But demand is already recovering after the downward correction of prices." Key US soyaoil futures have been falling steadily since mid-July, pushed down by factors including falling crude oil prices. "Vegetable oils as well as ethanol produced from corn have clearly gained competitiveness in the energy sector recently," Oil World said. "Demand for vegetable oils as biofuel has clearly accelerated in Europe."
A recovery in demand for vegetable oils in some regions to power electricity generation is also visible, it said. But it also warned the recovery in physical demand could again strengthen vegetable oil futures. "If the large demand for potential looming in the energy sector materialises, vegetable oil surpluses could be absorbed quickly," it said. "We may thus already be near price levels which bear the risk of creating a renewed demand excess, despite the current outlook for rather ample supplies."