Did inside info help big refiner mint money ahead of edible oil duty hike?

On Monday, the largest position holder in soy oil held 31,940 lots long against the largest short seller's 6,310 lots, indicating he foresaw a steep rise in import duty

Was it inside information or just anticipation about government measures to protect farmers from a fall in oilseed prices below the minimum support price (MSP)? One cannot say for sure. What is certain, however, is that a clutch of large traders, including one who is a big refiner, had taken huge bullish positions on the NCDEX and MCX in a leading edible oil contract. Today all oils hit the upper circuit of four per cent on the commodity exchanges.

On Friday night, the government issued a notification imposing the steepest hike ever in import duty across all edible oils. The previous duty hike, announced only in August, hadn't prevented oilseeds prices from falling. Hiking the duty on crude palmolein oil to 30 per cent and on refined oil to 40 per cent from 25 per cent is expected to help edible oil refineries in a big way, as it increases their margins by 50 per cent. Refineries are soon likely to announce price hikes including on branded edible oil.

Gyan Choradia, MD, WICOF Ltd says, "The sharp increase in palmoline duty will hurt the poor as prices will go up and overall duty hike will help refineries more than farmers." He sees refineries, which were so far facing competition from importers, now turning stronger and competition becoming unhealthy.

On Friday evening, the largest trader on the NCDEX was having a short position thrice as large as the long, and the overall market was also short. On Monday, soybean prices rose between 2-2.5 per cent, trapping short sellers, but in soy oil, the largest position holder was holding long position of 31,940 lots against the largest short seller's 6,310 lots, indicating his long traders were expecting a steep rise in import duty. Without the top bull traders, overall soy oil market was short.

Similarly, on MCX the which trades actively in CPO, top ten long positions totalled 6,219 lots while top 10 short positions stood at 6,099 lots on Friday. But of the top 10 largest traders, one was bullish with 4,289 lots or over two-third long position.

Market watchers say that an influential player built long positions ahead of the duty hike and now, with prices rising in a circuit and likely to stay high, he is making big money.

While CPO and soya oil prices are up four per cent in higher circuits on domestic exchanges today, in the Malaysian commodity exchange, CPO futures fell sharply by around 3 per cent to 2,630 ringgit from Friday's 2,710 ringgit. This was due to the fear that India's imports will fall due to high duty. Those who had already contracted imports earlier will have to pay higher duty when the vessels arrive at Indian ports. Even at Kandla port, CPO price fell by Rs 10 per kg to Rs 440 following fall in Boursa Malaysia despite the fact that CPO was in upper circuit due to short covering.

In the Indore mandi, the benchmark soybean prices rose sharply on Monday from Rs 2,700 to Rs 2,800 a quintal. However the price is still below the MSP of Rs 3,050, though soya degum and soya refined oil were up 4-5 per cent in the market.

The government trigger for raising duty was the steep rise in import of edible oil even as domestic seed production was high, making seed prices unremunerative for farmers. According to data from the Solvent Extractors Association, edible oil import rose by a record of 5 per cent to 15.44 million tonnes in oil year November-October, but in the past 5 years, import has risen 45 per cent, and 75 per cent of India's consumption is now met by imported oil. The industry was much against steep imports and wanted refineries and crushing units to buy seeds from the market to make oil.