Edible oil prices may rise on higher import cost

Edible oil prices in India are likely to rise by ~5 a kg in the near term on the high cost of import owing to rupee depreciation, and a rebound in the prices of crude palm oil (CPO).

Prices of edible oils, including refined soya oil, mustard oil and sunflower, remained low in Indian markets following a global move, with the CPO prices slipping to multi-year declines in the Bursa Malaysian markets.

After hitting a low of Malaysian ringgit (MYR) of 2,150 (1 ringgit=.24 dollar) a tonne, CPO for near-month delivery recovered by nearly 25 per cent to trade at nearly MYR 2,225 a tonne. Over the past five months, however, CPO prices have declined by $125 to trade currently at around $500 a tonne.

In India, however, edible oil prices have moved in a narrow range this year despite rising demand and their import from major producing countries such as Indonesia and Argentina. Since India’s 67 per cent of around 25 million tonnes of domestic demand is met through import, rupee depreciation and global tariff changes have hurt domestic price movement.

“The rupee has depreciated by nearly 13 per cent during the past few months, which has increased import cost. Also, the government raised the minimum support price of oilseeds, resulting in a higher cost of production. Since the demand is also going to rise during the festival season, edible oil producers are set

to raise their prices marginally by around ~5 a kg,” said a senior industry official on the sidelines of Globoil India, an industry event being held here.

CPO prices in the spot Malaysian markets remained flat to trade at nearly a 1 per cent premium to the near-month future prices. The current price of $500 a tonne in the spot Indonesian market, however, stands at $450 a tonne for traders (due to $50 a tonne of export tariff), translating into a $400 a tonne of realisation for farmers there. This multiyear low of farmers’ realisation stands at their cost of production.

Sathia Varqa, co-founder of Singapore-based Palm Oil Analytics, forecasts CPO prices at MYR 2,1592,250 a tonne for October-December 2018 and further at MYR2,250-2,350 a tonne for the quarter ending in March next year.

“There were a lot of edible oil and vanaspati imports happening under the South Asian Free Trade Agreement (SAFTA) from countries like Bangladesh, Sri Lanka and Nepal, resulting in the domestic industry being hit badly. But such import is not going to be easy now,” said Atul Chaturvedi, president,

Solvent Extractors Association (SEA).

The Directorate of Revenue Intelligence (DRI) has restricted edible oil import from Bangladesh. In a notification dated September 25, the DRI said that a “no objection certificate” was necessary before importing edible oil from Bangladesh. The DRI is also considering similar action against edible oil import from Nepal and Sri Lanka.

Sandeep Bajoria, chief executive officer of Sunvin Group, however, says the introduction of the Insolvency and Bankruptcy Code (IBC) had brought consolidation in the Indian edible oil refining business. “Nearly 5 million tonnes of nearly 30 million tonnes of India’s installed refining capacity has been referred to the National Company Law Tribunal (NCLT) over the last few months. Thus, the Indian edible oil refining industry is passing through a consolidation phase now.”

Meanwhile, the ongoing trade war between China and United States has lowered export of edible oil from producing countries resulting into a threat of inflation in import reliant countries.