Contrary to forecast of lower prices, the edible oils have become dearer these days as about 30 per cent surge in retail prices causing inconvenience to the consumers. Oil seeds market analysts attribute three reasons to the price rise. The recent heavy rains and Covid-19 damaged the oil palm crop in Malaysia, diversion of palm oil to bio fuel, huge imports by China and sudden drop in imports of sunflower oil from Russia and Ukraine, said the analysts.
India imported 8 lakh tons of palm oil in August, while soybean oil imports declined to 391,000 tons from 485 tons in July. Sunflower oil imports fell to 1.58 lakh tons from 2.09 lakh tons.
“India imported sunflower oil of about 1.60 lakh tonnes in August as against average three lakh tonnes per month. This created sudden demand-supply gap across the country. On the other hand, oil palm crop yield also affected due to the heavy rains. The dragon country imported 17 lakh tones of sunflower oil from Ukraine and Russia in the last quarter. These three factors created shortage for edible oils in the Indian market. Further, prices of ground nut oil and rice bran oil are also rising in the domestic market,” said the analysts.
The Solvent Extractors’ Association of India (SEAI) has compiled the import data of vegetable oils (edible and non-edible) for the month of August 2020. Import of vegetable oils in August was 1,370,457 tons, down by 14 per cent when compared to 1,586,514 tons in August 2019. The figure included 1,308,405 tons of edible oils and 62,052 tons of non-edible oils.
The overall import of vegetable oils during November 2019 to August 2020 is reported at 11,195,890 tons compared to 12,867,486 tons during the same period of last year i.e. down by 13 per cent. Hotel/Restaurant/Café (HoReCa) segment was totally affected by the Covid-19 and this further dampened the demand for edible oils. HoReCa segment consumes mostly palm oil.
Subhranil Dey, senior research analyst (agri commodities) at SMC Securities, said: “The import of edible oils has been affected mainly due to demand destruction since April 2020 from HoReCa segment hitting lower import, mainly of Palm Products. The overall import during oil year 2019-20 (Nov-Oct) may witness fall in import by a 14-15 lakh tons and be around 134-135 lakh tons against last year 149.1 lakh tons.”
The crude palm oil futures contract (November) on Bursa Malaysia Derivatives is expected to trade with an upside bias in the range of 2750-3000 MYR/ton.
“The labour shortage issue inherent in the domestic plantation industry is expected to reduce productivity and harvesting even further during the peak cycle season at the end of the year. Malaysian Palm Oil Association said local planters have already lost up to about 25 per cent of potential yield throughout the series of Movement Control Orders (MCOs) right to the current Recovery MCO (RMCO), without the services of some 37,000 foreign workers who had been sent home during the peak of the Covid-19 pandemic,” observes Dey.
The industry expects to face a shortage of 62,000 workers as many countries are still imposing travel restrictions, while many international entryways remain closed. Indonesia may further increase palm oil export levies in future to support its ambitious biodiesel programme.
The upside momentum of CBOT Soy oil futures (December) is looking bullish and can test 36 cents per pound in days to come.
According to a latest report on oil seeds by SMC Securities, rising oil prices persisted in August due to stronger demand for oils and slower crushing in Argentina. Brazil soy oil prices climbed $49 to $773/ton and the United States experienced a $63 jump to $771/ton. Argentina soybean oil prices rose modestly, up $37 to average $746/ton for the month, positioned at a $25/ton discount against the other major exporters. Palm oil prices continued to rally owing to strong soy oil prices offsetting a late August dip due to growing Malaysian stockpiles.
Soy oil futures is on a bull-run and steady on the way to approach its lifetime high of Rs950 level (for October contract). On it way, any correction can be seen as a buying opportunity as there is crunch on the supply side in the domestic market due to lower imports and also there are strong cues from CBOT.
CPO futures is also riding high and trading nearits 5 months high, owing to the fact that crude palm oil imports have been declining month-on-month due to government restrictions and also the reason that production in Malaysia has been affected due to labour issues. Adding to it, the bullish trend of soy oil on CBOT is adding support to the edible oil prices. Going ahead, we can see the counter reaching 790-810 levels in October contract.
Generally, edible oil prices ease from September onwards further to Diwali season. New crop of groundnut, oil palm and soya bean would hit the market this season. India imports 15 million tons of vegetable oil per annum and palm oil accounts for 60 per cent of the total edible oil imports. The demand for edible oils would also increase during the festive season of Dassehra and Diwali.
According to SEAI, the Kharif planting of oil seeds rose 20 per cent and the domestic edible oil production will also go up. The increased water resources will also benefit Rabi oil seed planting. All these factors will ease the prices of edible oils in the days to come. Analysts expected consolidation after the rally in palm prices a month ago.
The writer is a business journalist with 27 years of experience