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Indian refiners have cancelled purchase orders for 70,000 tonnes of crude palm oil that had been scheduled for delivery between March and June, citing record-high prices in Malaysia and shrinking refining margins in India, according to four trade sources.
Refiners in the world's biggest palm oil importer cancelled the volume over the past three days, including 40,000 tonnes on Thursday alone, after Malaysian palm oil futures surged more than 11% over four weeks.
The Indian cancellations could help curb the rally in Malaysian palm oil prices, but they may in turn support soybean oil prices as some refiners switch to the alternative.
The trade sources spoke on condition of anonymity as they are not authorised to speak to the media.
One Indian buyer, who runs a refinery on the east coast and cancelled palm oil shipments scheduled for delivery in March, said negative refining margins in India combined with high global prices made it more profitable to sell the palm oil back to suppliers rather than import it.
Price-sensitive Asian buyers have traditionally relied on palm oil for its low cost and fast shipping times. However, the recent price surge has made palm oil more expensive than soybean oil on the global market.
A flow of soybean oil shipments into India between February and March, priced slightly below palm oil, prompted some refiners to cancel palm oil purchase orders and switch to soybean oil instead, according to Sandeep Bajoria, chief executive of vegetable oil brokerage Sunvin Group.
A Mumbai-based trader working for a global trading company said buyers and sellers are mutually agreeing to cancel contracts, with buyers accepting a price slightly below the current market rate to complete the cancellations.
Oil Prices And Global Markets
Crude palm oil (CPO) is being offered at around $1,210 a tonne, cost, insurance and freight (CIF), in India for March delivery, compared with about $1,120 to $1,130 a tonne last month.
India's palm oil imports, sourced mainly from Indonesia and Malaysia, fell 45% in January from the previous month to 275,241 tonnes, the lowest level in nearly 14 years, as refiners turned to cheaper soybean oil, imported mainly from Argentina and Brazil.
A New Delhi-based trader working for a global trading company said speculation that India could raise import duties on palm oil to support local farmers had prompted some refiners to cancel contracts and lock in quick profits.
Source: Reuters