Edible oil prices are set to decline over the next few months due to demand destruction across all major consuming sectors following global shut down of factories, hotels and restaurants. To make ammters worse, a sharp decline in crude prices has hit palm oil demand for biodiesel consumption.
Crude palm oil futures for near-month delivery have shed 28 per cent so far this calendar year to trade currently at 2,088 ringgit in the benchmark Bursa Malaysia. They were ruling at 2,897 ringgit earlier this year.
Speaking at a webinar, Dorab Mistry, Director, Godrej International, said, "The world is passing through a medical emergency during which consumption usually gets impacted. Consequently, edible oil demand has taken a hit of as much as 30 per cent from both, biodiesel and consumer segments. With the favourable climatic condition bringing US farmers back to soybean farming from maize, a similar scenario prevails in other parts of the world, resulting in higher production of vegetable oil. So, the palm oil price outlook is not favourable and is going headed towards a strong bearish phase that bring prices nearer to the cost of production."
According to Mistry, the vegetable oil industry saw its shortest bull run in history.
Prices that had started firming up in October 2019 peaked in mid-January 2020 primarily due to soybean acreage shifting to corn in the United States, drought in Europe and robust implementation of biodiesel mandate by the Indonesian government. The strong bullish sentiment was also supported by robust Chinese demand in the wake of its trade war with the United States.
However, China started importing soybean from Argentina, Brazil and other available sources leaving US imports high and dry. Suddenly, Chinese traders started selling their holding ahead of the New Year holiday in February. The move saw crude palm oil prices falling by 10 per cent in a week after January 14, 2020.
"Plenty of rainfall across Europe and Australia and more importantly, the use of genetically modified soybean seed for planting palm which gives a good output even with less rain has raised prospects of higher output. With destruction in demand, the recovery in prices in the second half of the current calender 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 that hit Indian shores last year (November 2019-October 2020). But the nationwide lockdown completely brought transportation to a halt and forced the closure of factories, resulting in a sharp decline in vegetable oil imports in the January- March period.
"During the nationwide lockdown, the industry managed to keep edible oil supply uninterrupted at lower prices. But due to the closure of hotel and restaurants, the monthly demand declined by 30 per cent to 1.4 million tonnes in the past 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, Sunvin Group.
India's monthly palm oil import has now declined to 350,000-400,000 tonnes from an average of 750,000-800,000 tonnes earlier.
Angshu Mallick, Chief Executive Officer, Adani Wilmar, the producer of Fortune brand edible oils, believes that the Covid-19 pandemic has hit branded edible oil