Cheaper palm oil, higher sales help vanaspati units

Vanaspati manufacturers in the small and medium sector are passing through a boom phase thanks to the twin factors of falling global prices of its basic raw material, crude palm oil (CPO), and rising sales in the domestic market.

Vanaspati sales were rising because manufacturers had brought down prices by almost a third per 25kg tin the last three months, said S N Jhunjhunwala of the leading regional brand ‘Jhula’.

“Three-fifths or more of our customers are companies making biscuits and other confectionery, or food outlets and the lower prices has led to additional buying by them and shift to better types of vanaspati”, said a top official of the trade body of vanaspati manufacturers here.

Most of the market was dominated by large regional brands like Jhula through some national brands were also available at shops from companies like Marico.

Producers like Jhunjhunwala had passed on a substantial part of the cost savings on account of falling palm oil prices to consumers while many edible oil sellers, who had also gained from lower raw material prices, had limited their price cuts, claimed the official representing the association of vanaspati manufacturers.

Jhunjhunwala said most of his buyers were committed to his brand on account of factors like superior quality, competitive pricing and inherent advantages of of the product like longer shelf life and lower usage.

According to Jhunjhunwala, palm oil was the preferred raw material for vanaspati producers because of advantages like less hydrogenation demand for conversion of the oil into vanaspati, and longer shelf life without contamination or oxygenation. Hydrogenation was the name of the process in which hydrogen gas was introduced into any edible oil to convert it into vanaspati.

Palm oil prices halved between March 2008 and February 2009 to Rs 340-365.

Palm oil prices were expected to fall further in the second half on bumper global production by producers Malaysia and Indonesia, accounting for 90 per cent of world production.

Owing to bumper estimated production, RBD olein was likely to go down and challenge $500 f.o.b. or lower, according to recent report.

However, sales of edible oils would rise as per capita consumption of edible oil was estimated to rise to 11.64kg this oil year as compared to 11.40kg in the previous year.

Indian vanaspati units were in a special situation as sales in most other markets were stagnant or falling owing to lower per capita consumption.

Palm oil could fall to $380 a ton due to the global economic recession.