On a year-to-date basis (YTD), crude palm oil prices fell 17 per cent to Rs 374.30 per 10 kg on MCX. The commodity was trading at Rs 453 per 10 kg on January 1. (Reuters)
Crude palm oil prices plunged by more than 15 per cent on the Multi Commodity Exchange (MCX) in the ongoing calendar year. According to market experts, the fall in prices of the commodity can be attributed to higher imports amid concerns about the economic slowdown in China that added downward pressure on palm and other edible oil prices in 2015.
On a year-to-date basis (YTD), crude palm oil prices fell 17 per cent to Rs 374.30 per 10 kg on MCX. The commodity was trading at Rs 453 per 10 kg on January 1.
As stated by the Solvent Extractors’ Association of India, in 2014-15 import of palm oil increased by 15.7 lakh tonnes and reported at 95.4 lakh tonnes compared to 79.6 lakh tonnes in 2013-14. Import of vegetable oils during the Oil Year 2014-15 (Nov’14 to Oct’15) set a new record level of 146.1 lakh tonnes (14.61 million tonnes) compared to 118.2 lakh tonnes (11.82 million tonnes) for the same period of last year i.e. up by 23.64 per cent. India’s dependence on imported oil has increased to 70 per cent of its requirements.
DK Aggarwal, chairman and managing director, SMC Investments and Advisors, said, “Import of edible oil has sharply increased in last few years due to stagnant oilseed production and rising oil demand in the country. Excessive import has put tremendous pressure on the palm oil prices.”
Ajitesh Mullick, AVP retail research, Religare Commodities, said, “Weakening crude oil markets and continued talks of slowing export demand against good supply availability for Malaysian palm oil coupled with the prospect for ample global soybean supplies in 2015/16 hit crude palm oil prices in the ongoing calenar year. Concerns about the economic slowdown in China also put palm and other edible oil prices under downward pressure”
On the international market as well, the supply had taken a toll over the demand by the end of the year. The Malaysian Palm Oil Board reported a surprise rise in October’s output, which contributed to fresh 15-year high end-stocks. Inventories in the world’s second-largest palm producer jumped 7.3 per cent to 2.83 million tonnes at end-October, according to data from industry regulator Malaysian Palm Oil Board (MPOB).
In the recent development, the government on November 10 allowed 100 per cent foreign direct investment (FDI) in palm oil plantation.
Mullick said, “The Centre’s decision to allow 100 per cent FDI in oil palm plantations is welcomed by the industry since it is one of the important steps in helping fill the gap of edible oil deficit in the country. At present, India has more than two lakh hectares under oil palm, with an additional potential of around two million hectares therefore with this decision the massive production potential can be translated into reducing India’s palm oil import burden of approximately $10 billion.”
Aggarwal seconds Mullick and said, “The country has a scope to bring around 2 million hactare more, which will bring more jobs and reduce India’s palm oil import burden on current account deficit. The FDI will give a big boost to plantation sector of palm, which is growing at a slow pace due to long gestation period between cultivation and harvest.”
According to experts, local consumption of edible oil further increased in 2014-15 due to increase in per capita consumption (4.5 per cent) and population growth (1.76 per cent). India’s annual edible oil demand of 18-19 million tonnes is met by imports, consisting mainly of palm oil sourced from Indonesia and Malaysia.
Before investing in crude palm oil, an investor should look to Malaysia palm oil output and exports data released by Malaysian Palm Oil Board and cargo surveyors. One should also zero in on government policies, price movement of Malaysian palm oil futures on the Bursa Malaysia Derivatives Exchange, crude oil prices on NYMEX, movement of soybean futures on Chicago Board of Trade, price trend of oilseeds on domestic commodity exchanges, movement of ringgit and Indian rupee against dollar, which determines export-imports.
The fundamental highlights that the supply side is heavier than the demand. As stated by the Solvent Extractors’ Association of India, the current stock of edible oils as on November 1, 2015 was the highest. India’s monthly requirement is about 16 lakh tonnes against which currently holding stock over 23.70 lakh tonnes equal to 44 days requirements.
However, markets experts are looking bullish on the further movement of crude palm oil prices on commodity exchanges. Kunal Shah, head, commodity research, Nirmal Bang Commodities, said, “If the present climatic conditions continue to exist, the production of palm oil may be hindered, resulting in pushing up the prices considerably. If the Malaysian Ringgit weakens, we can expect a significant rise in the palm oil prices.”
Mullick said, “Palm oil prices can touch Rs 425-430 levels by end of March 2016. Most experts maintain global palm oil prices have already bottomed out during August 2015. World’s one of the top analysts Dorab Mistry views that after two years of comfortable surplus, the world faces a situation where incremental demand exceeds incremental supply.”