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Crude palm oil prices may decline up to 15% by year-end

Industry experts say bumper supply from Malaysia, Indonesia could pull down prices

Dilip Kumar Jha  |  Mumbai 

Crude palm oil
The estimated price fall would help the government control retail food inflation

In a major relief for the Indian government and consumers, (CPO) prices are expected to drop nearly 15 per cent by the end of 2017 owing to bumper supply from Indonesia and Malaysia -- the world’s two largest producers of the oil, according to industry experts.

Speaking on the sidelines of the three-day Globoil 2017, James Fry, chairman, LMC International, a London-based agri commodities trading firm, said, “prices are set to decline to 2,400 ringgit (Rs 36,600) a tonne by the current year-end, primarily because of huge supply coming in from Malaysia and Indonesia.”

Globoil is a premier international conference and exhibition on vegetable oil, and oleochemicals, etc.

The benchmark CPO contract for near month delivery on Bursa Malaysia shot up sharply to trade at 2,873 ringgit a tonne, a 3.8 per cent jump in September alone. The shows a 7.8 per cent rise from its level a month ago. 

The sudden spurt in the is largely attributed to lower output in Malaysia and Indonesia where production declined due to fewer number of working days in August due to Ramadan/Eid holidays. 

With bumper output reported in Argentina, production in Malaysia and Indonesia is set to increase in the coming months. Also, as CPO’s use in cooking is estimated to decline with the onset of winter season, prices might remain subdued. This would keep prices of other edible oils, including refined oil, sun oil and oil, under check. Its bio diesel demand has very limited room for increase due to lower crude oil prices.

The estimated price decline would help the government control retail food inflation, which recorded an increase in August. The global price drop would have a similar impact on the Indian markets, assuming the rupee does not depreciate too much from the current level.

Dorab Mistry, director, Godrej International, said there was little opportunity for an increase in CPO prices from the current level.

11-12 million tonnes of every year. During the current oil year i.e. November 2016- October 2017, India’s import is likely to be 15.5 million tonnes compared to 14.7 million tonnes reported in the previous year. Atul Chaturvedi, president, Adani Wilmar (the producer of Fortune brand edible oil) and also president of The Solvent Extractors Association of (SEA), estimates India's edible oil consumption to rise by 3.5 per cent every year.

“Rising inventories in the South East Asia, driven largely by China and higher domestic production in India, on the back of a weakening US dollar coupled with growing competition from oil, may keep under pressure. Peaking of production in October coupled with falling seasonal demand in Europe and US may add to the downward pressure. But this is not expected to have a major impact on Indian prices due to the increase in import duty,” said Satendra Aggarwal, chief operating officer,

Meanwhile, the Indian government's decision to hike import duty has raised prices over the past month, which has helped stockists to release more quantity into the market. Consequently, the carryover stock is estimated to remain lower this year at 1.5 million tonnes now from 2.5 million tonnes forecast earlier.

Experts, however, believe the output in to decline to 8.5 million tonnes this year on a sharp decline in acreage. Data compiled by the Ministry of Agriculture showed a decline in acreage of 200,000 lakh ha, around 15 per cent from the previous year.

Thomas Mielke, chairman of Germany-based Oil World, said India’s oil meal exports could go up this year on higher seed crushing and more so parity in seed crushing business following the increase in import duty.

Through a notification early last month, the Ministry of Commerce raised the import duty on CPO to 15 per cent from 7.5 per cent earlier. Similarly, the import duty on was raised to 25 per cent now from 15 per cent. The move was aimed to help farmers realise higher than the minimum support price. Most of the last season, prices ruled lower than the MSP which discouraged farmers from sowing this year.

“The slight price increase is good for farmers, which would encourage them to bring more area next season. At the same time, it is not going going to affect consumers at all," said B V Mehta, executive director, SEA.

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First Published: Fri, September 15 2017. 01:46 IST
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