News Brief
Oil’s Not Well With Palm And Sunflower As Indonesia’s Export Curbs Sets Off Alarm Bells Over Price Hikes, Inflation
- Indonesia announced shipment halts on crude palm oil will start from 28 April and last until the government deems a domestic shortage resolved.
(Palm oil/file photo)
India may be staring at a possible sharp elevation in edible oil prices in India with Indonesia, world’s largest producer of palm oil, planning an export ban on palm oil which alongwith its derivative products are used to manufacture several daily consumption goods such as soaps, margarine, shampoos, noodles, biscuits and chocolates.
Indonesia announced shipment halts on crude palm oil will start from 28 April and last until the government deems a domestic shortage resolved.
Though there has been a reported roll-back of the export curbs, which will be restricted to shipments of refined, bleached and deodorised (RBD) palm olein, in the absence of any official word on this, there is still apprehension that a sudden stop in monthly supplies of around 300,000-325,000 tonnes of palm oil will escalate edible oil prices in India which have been already on the boil due to the ongoing Ukrainian crisis.
India imports around 13-13.5 million tonnes of edible oils, of which around 8-8.5 million tonnes (around 63 per cent) is palm oil. Almost 70 per cent of the total annual palm oil imported into India is in the crude form, while the rest is refined.
With imports of nearly 60 per cent of its edible oil requirement, India remains extremely vulnerable to adverse developments in global trade as well as oilseed production and regulatory changes in key import centres. Hence India would be amongst the worst affected countries as it is the world’s largest palm oil importer, which depends heavily on Indonesia and Malaysia.
The country's total vegetable oil imports rose 16 per cent to 12.70 lakh tonnes in January, compared to 10.96 lakh tonnes in the year. Palm oil is a relatively cheaper oil among the other edible oils. According to a Crisil research, palm oil is the most consumed edible oil in India, with a 40 per cent share in the country’s edible oil consumption basket and refined sunflower oil constitutes 10 per cent of India’s consumption of 230-240 lakh tonne of edible oils (all types) annually.
The cascading effect of the rise in palm oil prices will be seen in further price increase in other edible oils such as soyabean oil, sunflower oil etc., fanning food inflation in India.
“Indonesia’s ban of palm oil exports can push up edible oil prices,” agrees Amnish Aggarwal, Director - Research at Prabhudas Lilladher. “The ban comes as another blow after the surge in oils due to the Ukraine-Russia war.
Palm oil is a key ingredient in major food processing industries and Fast Moving Consumer Good (FMGC) staples majors such as Britannia, Hindustan Unilever, Nestle India and ITC would be amongst the key companies affected directly as a result of the ban and higher prices,” says Aggarwal who believes the maximum impact in categories such as biscuits, noodles, cakes, potato chips, frozen desserts etc.
Research by Prabhudas Lilladher also suggests that an increase in the prices of palm oil will further impact the margins in 1QFY23. Aggarwal expects margins to bottom out in 1HFY23 given inflation across inputs. “We don’t rule out further cut in margins in 1H23. We expect weak to sideways movement for select consumer stocks in the near term,” cautions Aggarwal.
In the first half of FY 2023, a CRISIL research projects upward pressure on palm oil price for four reasons. First is a shift in demand from sunflower oil towards palm oil, second is unresolved labour issues in Malaysia hitting palm oil supplies, the third is restrictive export policy of Indonesia and finally increase in consumption during Ramadan.
If Russia and Ukraine manage to resolve their issues by June, global sunflower oil supply could normalise in the second half of this fiscal, thereby exerting downward pressure on palm oil price.
One way to offset impact on other edible oil prices is India’s purchase of Russian sunflower oil, which could help ease the shortfall at a time when availability of vegetable oils is stretched because of Indonesia's decision to restrict palm oil supplies and lower soybean. However, this relief would be a temporary one as Ukraine and Russia account for a lion’s share of about 78 per cent in global exports of sunflower oil.
Supply disruptions caused by the Russia-Ukraine conflict could lead to a supply shortfall of at least 4-6 lakh tonne of crude sunflower oil for India this fiscal, CRISIL estimates show. As much as 90 per cent of India’s annual crude sunflower oil requirement of 22-23 lakh tonne comes from Ukraine (70 per cent) and Russia (20 per cent), and the rest from Argentina and other countries.
Relief for India could come from three factors which could help soften palm oil prices in the second half of fiscal 2023. These are - an improvement in supply from June onwards, which heralds peak palm oil production season in Malaysia and Indonesia, a resolution of Malaysian labour issues after Ramadan and a 5-7 per cent on-year increase in global palm oil stock in the year 2022 (November 2021- October 2022).
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