India. Edible oil counting on rupee fall, but faces a supply reality check

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Prices of edible oils – crude palm oil (CPO) and refined soy oil (RSO) – in futures market fell for the third consecutive month in August and softened in September too, in line with the global trend and higher stocks.

In international markets, soy oil prices on CBOT plunged more than 18 per cent this year while CPO in Malaysia declined about 10.5 per cent. Similarly, refined soy oil prices on National Commodities and Derivative Exchange (NCDEX) was down 7.8 per cent while crude palm on  ..

Despite a falling rupee — which shed almost 12 per cent this year — and a higher import duty on edible oil (more than 200 per cent increase), current edible oil prices are higher by only 10 per cent on-year. This shows that the prices have not increased to the proportion it should have because of the fall in international edible oil prices.

Imports rising

Refined palm oil and soybean oil imports attract duty of 59.4 per cent and 49.5 per cent, respectively. In August, edible oil imports have been the largest.

In the current oil year started November 2017, edible oil imports in the country are lower by only 4.2 per cent (or 5.18 lakh tonnes) at 11.92 million tonnes (November–August) than 12.44 mt during the same time period last year.

Weakness in the rupee did not deter imports in anticipation of higher demand in coming months ahead of festivals and expectations that the local currency may further depreciate due to international events. The rupee has depreciated to an all-time closing low of ..

Higher stocks of edible oil

According to the latest monthly report by Solvent Extractors Association of India (SEA), total stock at ports and in pipelines as on September 1 is reported at a record 25.74 lakh tonnes (lt), up by 99,000 tonnes on-month.

Stock positions have increased by 3.8 per cent on-month in August because of higher import of palm oil. In August, import of palm oil rose sharply by 67.4 per cent on-month to 9,20,894 tonnes. The average monthly stock positions of vegetable oil has been 11.1 per cent higher at 23.83 lt for January to August compared with 21.46 lt last year.

Duty-free imports from South Asian countries

There are reports of imports of edible oil from Bangladesh, Nepal, Bhutan and Sri Lanka at nil duty under the South Asian Free Trade Area (Safta) arrangement, which also pressured prices.

According to the data published by the Commerce Ministry, about 8,500 tonnes of vegetable oil comprises soy oil, palm oil and vegetable fats of edible grade imported from the Safta nations during April-July, which is more than 4 times increase in import volumes against last year’s.

Bangladesh is the largest exporter of vegetable oil to India during the said period at 3,400 tonnes, followed by Nepal (2,779 tonnes of soybean crude oil) and Sri Lanka (1,509 tonnes of vegetable fat oil). Bhutan also exported about 798 tonnes of refined palm oil to India for the first time ever in 2018-19.

Outlook

Going forward, edible oil prices may gradually increase in coming months on a weaker rupee and improvement in physical demand due to festival season. However, higher stocks at ports and pipelines than last year and good kharif oilseed production prospects will keep prices in check.

Moreover, bumper soybean production in the world and seasonal increase in CPO production in Malaysia and Indonesia may exert downward pressure.

India Times

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