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Drought to hit festival demand for oils

The worst drought in a decade could hit demand for edible oil during the festival season in India, the world's largest importer, traders said on Tuesday.

They said while the country was expected to buy more oils in August compared with the previous month, imports would be much lower than at the same time in the previous year.

Traders said domestic demand would be lower, mainly due to a dry spell in many parts of the country. The June-September monsoon rains have resumed after a break but not enough to reverse the impact of the drought, they said.

"The drought has soured the appetite for oils," said an edible oil trader, based in Ahmedabad, adding the festival season was likely to be a low key affair this time.

Traders said India was likely to import 450,000-500,000 tonnes of oils in August, up from about 425,000 tonnes in July, but down from 655,000 tonnes in August last year.

They said the demand in September and October was also expected to be subdued. Harvests for the winter oilseeds crop begin in late October. Domestic oil consumption normally rises during the Hindu festival season which starts in mid-August and peaks in early November with Diwali.

The monsoon rains arrived over Kerala in early June and moved to the western parts of the country, but its progress in northwestern India has been erratic.

Several crops including oilseeds and grains in the key growing states have been hit by lack of rain and 12 states have so far declared either part or all of their territory drought-affected.

Economists say the drought may cut deeper into growth than previous monsoon failures due to the economy's growing reliance on spending by rural consumers.

The monsoon, which has so far delivered 30 per cent less rain that normal, is vital to the country's economy as agriculture makes up about 25 per cent of gross domestic product and employs about 70 per cent of its more than one billion population.

Oil demand

"Local demand was quite dull in July," said an oil trader, based in Indore, hub of the country's soy trade. Retail demand would pick up after a couple of weeks with the beginning of festivals, he said.

Good rains were reported in the past few days in the soybean growing belt of Madhya Pradesh, but showers in the groundnut producing state of Gujarat were not sufficient to revive the crop prospect, traders said.

Traders said fresh import contracts would be signed in the coming weeks with a fall in local inventories. They estimated edible oil stocks of about 225,000 tonnes at ports.

India imports nearly half of its annual oil requirement of about 10 million tonnes from countries such as Malaysia, Indonesia, Brazil, Argentina and the United States.

Malaysian palm oil futures were higher across the board at midday on Tuesday, but trade was light, with few taking positions in a market facing bearish factors such as improved crop prospects for Indian and US rivals.

The benchmark third-month October contract ended the morning session 14 ringgit up at 1,466 ringgit ($386) a tonne.

Poor rains could lower oilseed output by 10 to 15 per cent in the current winter season from about 12 million tonnes a year earlier, traders said.

India annually produces over five million tonnes each of groundnut and soybean in the winter season, sown mainly in June-July in Gujarat, Madhya Pradesh and Andhra Pradesh.

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