September 26, 2007 (The Economic Times) – Vegetable oil prices are likely to come down by next year with an expected slowdown in biodiesel production, according to London-based economic consultancy LMC International managing director James Fry. Speaking at a seminar in Panaji, Mr Fry said there is a cyclical uptrend in palm oil production and if the US government slashes export subsidies on biofuels, the prices of vegetable oil will be moderately bearish.Biodiesel producers in the US bring their production to ports and blend 1% of fossil fuel to claim a $300 per tonne subsidy. The fuel is then shipped to Europe where it is again subsidised through tax incentives. “The subsidies were meant to encourage biodiesel consumption in US and not to export it.
However production has now increased to over 100,000 tonnes a month which has helped lift vegetable oil demand which is a distortion that is helping the market,” he said.
Palm oil prices have been rising as the oil is diverted in making biodiesel. Mr Fry said there has been a lot of speculation and the prices of vegetable oil in both US and Europe have risen. But local biodiesel producers without the export subsidies are losing money with margins becoming negative and this is expected to slow down biodiesel production.