Indonesian curbs on palm oil may jack up soya oil price by 10%

The proposed ban on export of crude palm oil and its derivates by the Indonesian authorities is likely jack up prices of edible oils further in India. While it will lead to shortage of refined palm oil in the market, prices of substitute oils like soya refine oil is expected to go up by another 10 per cent in the next few weeks.

 

According to Sudhakar Desai, President of Indian Vegetable Oil Producers Association and Chief Executive Officer, Emami Agrotech, India’s heavy dependence on imported crude palm oil means lack of supply cannot be fully compensated through other measures. Out of the 5-7.5 lakh tonnes of palm oil that Indian refiners import every month, nearly 55 per cent comes from Indonesia – the largest exporter of palm oil globally. While the rest comes from the second largest player, Malaysia.

 

“While Indonesia’s share in Indian import has come down from 70 per cent, an absolute ban would mean shortage of supply as it would be impossible to import that kind of additional volume from Malaysia or any other country”, Desai told Business Today.

 

As a result, major consumers of refined palm oil, like the hotels, restaurants and packaged goods manufacturers, are likely shift some of their produces to soya refined oil. Incidentally, soya refined oil is also used by households for cooking. “Thus, price of soya refined oil is expected to go up further if the ban on crude palm oil is imposed for two or more weeks”, he added.

 

Manufacturers and refiners in India are currently awaiting a clarification of the authorities in Indonesia. While, initially a ban on exports was announced, sources say the country may finally stay away from banning crude palm oil as it may stoke food inflation further across the globe. Indonesia exports nearly a third of crude palm oil in the world.

 

According to a top executive of a leading edible oil company, the authorities in Indonesia are now considering an additional duty on crude palm oil, while pushing its refined palm oil derivatives like refined palm-olein, which can be consumed. “In such a scenario, the impact on Indian market would be much lower than anticipated”, he said.

 

India primarily imports crude palm oil and its refined versions, as the refining capacity and capability in the country is already well developed. Leading players like Adani Wilmar, Emami, Marico, among others, have enough refining capacity to meet the domestic demand and export refined oil too.

 

The demand for palm oil in India is growing at healthy double-digit rate as its use cases are increasing rapidly. While palm oil is crucial in making conventional packaged items like biscuits and cakes to soaps, detergents and cosmetics. The restaurants and hotels are a major consumer of palm oil.

 

According to Sougata Niyogi, CEO – Oil Palm, Godrej Agrovet, the price volatility in the edible oil market is expected to be short-lived. 

“We don’t estimate this ban to be long-term and the market will witness a correction. But May looks very bullish. The premium of soya and sunflower refined oil over palm Oil will narrow down. The overall price outlook is strong till August-September; that is, till next crop arrives in the market. The current conditions are going to keep farmer’s morale high on oil crop, and fuel rapid area expansion across major oil producing states. Consequently, our estimate is that productivity is going be better over the last couple of years, which subsequently will reflect in higher income for farmers who have matured plantations”, he said.

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