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Edible oil prices to decline as demand destruction ushers in bearish phase

Shutdown of factories, hotels and restaurants, and a sharp decline in crude prices have all contributed to demand destruction.

Topics
edible oil  | fuel economy | Coronavirus

Dilip Kumar Jha  |  Mumbai 

From cooking to woodworking, rising levels of skill have become a barrier to entry
Edible oil prices crash as the food business slows down in the coronavirus outbreak. (Representative photo)

prices are set to move into a strong bearish phase in the next few months due to demand destruction across all major consuming sectors following the global shutdown of factories, hotels and restaurants. Another major reason for the fall is the sharp decline in crude oil prices, which hit palm oil demand forbiodiesel consumption.

Crude palm oil futures for delivery (January to April) declined by 28 per cent so far this calendar year to trade currently at 2,088 ringgit in the benchmark Bursa Malaysia compared to 2,897 ringgit reported on January 1.

Speaking at a webinar, Dorab Mistry, director, Godrej International, said, “The world is passing through a medical emergency during which consumption gets impacted. Consequently, demand has been destroyed from both biodiesel and segments by as high as 30 per cent. A favourable climatic condition is bringing US farmers back to soybean farming from maize.

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A similar scenario prevails in other parts of the world, resulting in higher production of vegetable oil. Thus, palm oil price outlook is not favourable.

It is going towards a strong bearish phase, nearing its cost of production.”

According to Mistry, the vegetable oil industry saw the shortest bull run in its history.

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Its prices started firming up in October 2019 and ended in mid-January mainly due to soybean acreage shifting to corn in the United States, drought in Europe and robust implementation of the biodiesel mandate by the Indonesian government.

The strong bullish sentiment was also supported by robust Chinese demand in the wake of the trade war between the United States and China.

China started importing soybean from Argentina, Brazil and other available sources, leaving the US high and dry. Suddenly, Chinese traders started selling their holdings ahead of the New Year holiday in February. This led to crude palm oil prices falling by 10 per cent in a week after January 14.

“Plenty of rain across Europe and Australia and more so, use of genetically-modified soybean seed for planting palm gives a good output. With destruction in demand, recovery in prices in the second half of the calender year looks remote,” said Mistry.

India imported around 9.5 million tonnes of crude palm oil of the total 15.5 million tonnes of overall vegetable oils last year(November 2019-October 2020). But the nationwide lockdown, resulting in complete halt of transportation and closure of factories, led to a sharp decline in vegetable oil imports during the January-March 2020 period.

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“During the nationwide lockdown, the industry managed edible oil supply, which remained uninterrupted, at a cheaper price. But because of closure of hotels, and restaurants, among others, the monthly demand of vegetable oil declined by 30 per cent to 1.4 million tonnes in the last three months from an average of 2 million tonnes. We expect India’s crude palm oil import to decline by 2 million tonnes to 7.5 million tonnes this year,” said Sandeep Bajoria, chief executive officer (CEO), Sunvin Group.

India’s monthly palm oil import has now declined to 350,000-400,000 tonnes from an average 750,000-800,000 tonnes earlier.

Angshu Mallick, CEO, Adani Wilmar, the producer of ‘Fortune’ brand of edible oils, believes that the Covid-19 pandemic has hitbranded edible oil consumption across the country. Thi is because consumers picked the pack that was available in stores rather than waiting for their preferred brands.

First Published: Fri, May 01 2020. 14:57 IST
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