India Ratings revises edible oil sector outlook to stable

India Ratings & Research (Ind-Ra) today said that it has revised its FY15 outlook from negative to stable from negative for the edible oil sector due to likely improvement in operating profitability.
Ind-Ra expects the increase in the import duty on refined oils to 10 per cent from 7.5 per cent in January 2014 to result in crude edible oil becoming less expensive than refined oil even after factoring refinery costs, thereby making refining economically viable.
This in turn is expected to improve the operating profitability of most edible oil companies engaged in refinery and high-sea sales, Ind-Ra said in a report here.

According to Industry Analysis Services, the domestic edible oil sector will likely see capex of Rs 4,50 crore in FY15, while as per United States Department of Agriculture's (USDA) reports, global edible oil supplies are expected to exceed consumption by 4.3 mmt in OY14 compared to 2.5 mmt in OY13.
However, Ind-Ra expects global consumption to be higher than USDA estimates on account of the spurt in demand for alternative use of edible oils such as bio-diesel blending.
As the prevailing international prices fail to attract additional supplies in the international market, major exporting nations plan to channel their surplus oil production towards internal consumption (bio-fuel blending). This would help absorb the incremental production and also control overall stock levels which in-turn would lend support to edible oil prices.

The agency also expects the narrow price difference between soyabean oil and palm oil price to prevail during OY14 and thereby prompt higher demand for crude soyabean oil imports.