By Swansy Afonso
   Of DOW JONES NEWSWIRES


  MUMBAI (Dow Jones)--India's plan to sell subsidized edible oils to lower
income households from July 1 is unlikely to bring down prices in the local
markets as supply continues to remain tight, market participants said.

  With the new domestic soybean crop unlikely to reach the market before late
October and the festival season fast approaching, and the festival season only
a couple of months away, high domestic prices will ensure imports by the
private sector will continue to be strong, they said.

  The government plans to distribute 1 million metric tons of imported edible
oils at a subsidy of INR15/kg to lower income households in a bid to improve
supply and curtail rising prices of edible oils.

  Four state-run companies - PEC Ltd., MMTC Ltd., State Trading Corp. and
National Agricultural Cooperative Marketing Federation - have contracted to
import 179,000 tons of edible oils as of June 20, the government said in a
statement.

  However, many traders feel the quantity contracted is too low to ensure
sufficient availability in the market or bring down prices in the open market.

  "The government may sell a maximum of 80,000 tons of edible oils a month,
compared to the average monthly consumption of 400,000 tons. Hence, the impact
of any subsidized sales will be minimal," said Ramesh Malpani, a trader from
the major soybean growing province of Madhya Pradesh.

  "Much will depend on the quantum and momentum of the edible oil sales.
However, as most of the imported quantity has been factored in, these sales are
unlikely to have any major impact on prices," said Rajesh Agarwal, spokesman
for the Soybean Processors Association of India.

  He said current supply in the domestic market is so tight that the market
will be able to absorb fresh supply without pressuring prices.

  "The impact of these sales will mostly be confined to the (temporary)
reduction in purchases by private importers and not so much on prices as the
rates are also governed by international factors," said Sandeep Bajoria, chief
executive of Mumbai-based Sunvin Group.

  Moreover, demand from private importers will revive after a couple of weeks
as buyers rush in to stock up for the festival season, traders said.

  Most of the plants in Madhya Pradesh have been shut because of  low
availability of soybean for crushing and will resume operations only when the
new crop arrives in the market, said Prakash Manchare, another trader from
Madhya Pradesh.

  "Looking at the current shortfall in oil supplies, many buyers have entered
into forward contracts to ensure supply during the festival season that will
start in August," Manchare said.

  India's inflation rose to a more than 13-year high of 11.42% in the week
ended June 14, as a recent fuel price increase worked its way into the system
and pushed up prices of foods and manufactured products.

  High inflation in the last couple of months had prompted the government to
introduce a slew of fiscal measures to curb price rises. It scrapped import
tariffs on crude edible oils and cut tariffs on refined edible oils to 7.5%.

   Firm Overseas Markets To Support Prices


  In addition to supply concerns in the local market, floods in the U.S.
Midwest region are likely to provide further upward momentum to prices, traders
said.

  "Weather problems in the U.S. are driving the current rally in edible oil
prices, and there doesn't seem much relief in sight for prices in the next few
months," said Agarwal of SOPA.

  August soyoil on the Chicago Board of Trade had risen more than  7% in the
last one month alone on adverse weather in the major soybean growing areas of
U.S.

  With the festival season in India commencing in August, demand is expected to
be robust, maintaining the uptrend in prices.

  As for crude palm oil prices, high petroleum prices will continue to support
the market in the coming weeks, traders said.

  Crude oil hit a new record of $142.94 per barrel earlier in the day as a weak
dollar continued to push investors to alternatives such as commodities.

  Prices of edible oils in the local market are directly impacted by
international trends as the country imports nearly half of the oil that is
consumed annually.

  India buys soyoil from Argentina and Brazil and palm oil from Malaysia and
Indonesia.

  Although oilseed sowing this year is projected to be up from the  previous
year because of high prices, the lack of adequate rains last week might delay
the arrival of new soybean crop, traders said.

  "In Madhya Pradesh, soybean sowing has been lagging due to inadequate
rainfall. Only around 30%-40% has been sown as of now," said Malpani.

  According to latest government data, countrywide sowing of soybean, the main
oilseed grown in the country, was completed in  811,000 hectares so far,
compared with 996,000 hectares at the same time last year.

  Late planting could delay the arrival of the new crop into the market by as
much as two to three weeks and prolong the supply tightness, he said.

  However, overall production is unlikely to be affected as sowing will
continue till July 10, Malpani added.

  A sharp rise in area under groundnut cultivation will also ensure good
production of oilseeds this year. As of Friday, groundnut was sown in 904,000
hectares, up from 506,000 hectares.