With edible oil prices plunging to a six-month low in global markets and are set to decline further, consumers can heave a sigh of relief. The development is also likely to allow the Indian government to breathe easier on concerns over surging inflation. 

“Edible oils have dropped by $300 a tonne in the global market as three main concerns of the market that curbed supplies have eased,” said BV Mehta, Executive Director, Solvent Extractors Association of India. The first is that sunflower oil is now being exported from Ukraine by road and by other means through other East European countries. The second is Indonesia revoking its ban on palm oil exports and the third is that oil palm plantations are entering the peak production season. 

Despite the sharp drop in prices, Indian buyers have adopted a wait-and-watch attitude.

“Demand is not picking up even in India, where palm oil stocks are low. Thus, prices have dropped to 5,000 Malaysian ringgit,” said Abdul Hameed, Director (Sales), Manzoor Trading in Lahore, Pakistan. “Retail outlets will reflect the fall in price in two weeks,” he said.

Mehta said Indian buyers were keeping off as September futures were far lower than July and August on Bursa Malaysia Derivatives Exchange. “When prices plunge, no buyer would come forward and will expect further fall,” he said. 

Hameed said the upside for palm oil is limited, while the scope for a fall is more. Mehta said with kharif oilseeds likely to arrive in September, prices of edible oils will be under further pressure. “Festivals begin in August, so traders will wait before making any purchase,” he said. 

Also, sunflower oil and soyabean oil have been gaining at the cost of palm oil since May as the Centre allowed totally duty-free imports of 20 lakh tonnes of crude sunflower and soyabean oils annually each for two years under the tariff quota regime.  

This would mean during the oncoming festival season, edible oils are unlikely to make a dent in the consumer’s budget. 

Crude palm oil prices after having topped 7,000 Malaysian ringgit (MYR) in the last week of April have currently dropped below 5,000 MYR. On Tuesday, the crude palm oil (CPO) for September delivery ruled at 4,985 MYR, while October and November contracts ruled respectively at 4,943 and 4,975 MYR respectively. 

CPO dropped 16% last week

According to Malaysia Palm Oil Council, the daily CPO price was at 4,981 MYR against 6,505 MYR on June 7.  Palm oil prices dropped by 16 per cent in the last week alone. 

Similarly, sunflower oil prices have declined by seven per cent in the past month, rapeseed oil by 10 per cent, canola oil by 15 per cent and soyabean oil by 13 per cent. A nine per cent drop in soyabean oil price last week is now putting more pressure on the edible oil markets. 

In India, soyabean oil, sunflower oil and palm oil prices dropped, while the groundnut oil and mustard oil gained in the past month. Data from the Solvent Extractors Association of India show that the landed price of RBD palmolein has dipped to $1,395 against $1,755 a month ago and that of crude palm oil to $1,420 from $1,815 a tonne. The price of crude degummed soyabean oil had declined to $1,600 ($1,915) and that of crude sunflower oil to $1,850 ($2,150). 

Upside limited

“It is a bit hard to guess now how the palm oil will head for. It can possibly drop more or rebound but the upside is limited, while the downside looks wide open,” said Hameed.  

A market analyst said traders were building short positions for near-month contracts and longs for far-months. This is because this is the peak production time for palm oil.

“Indonesia has pumped up exports after revoking the ban on shipments last month. The sentiment has turned negative in the market and prices could head down in view of prospects of a production increase in Indonesia and Malaysia - the top two palm oil producers in the world,” Hameed said. 

Meanwhile, Indonesia has fixed the July crude palm oil reference price at $1,615.83 a tonne for shipping levy, including export tax of $288/tonne. Jakarta will collect an additional levy of $200 for every tonne of palm oil shipped from the country. 

However, Malaysia has kept its palm oil export tax unchanged at eight per cent for July while lowering the reference price to 6,732.26 MYR a tonne. This will entail an export duty to the tune of $122.40 a tonne. 

India had begun buying more soyabean oil from Argentina in May due to curbs imposed by Indonesia on palm oil exports.

The analyst said the edible oil market has been boosted by Indonesia pushing more oil into the market as the weather conditions are favourable. Malaysian palm oil production is also on the rise with the output increasing by 20 per cent during June 1-20. 

Hameed said palm oil production will increase until October. “Production in June is likely to be 1.5 million tonnes in Indonesia, easing supplies further. Indonesia may try to export 4 million tonnes,” he said. 

Malaysia exports down

According to reports quoting export surveyor ITC, shipments of Malaysia palm oil dropped 10 per cent during June 1-20 to 738,638 tonnes from 824,589 tonnes. 

“Retail markets will witness the downtrend in a couple of weeks,” Hameed said.

In India, edible oil manufacturers have begun slashing prices and the trend is likely to continue with the Centre keeping a watchful eye on inflation. 

Edible oil prices have gained since the Covid pandemic set in on lower palm oil production due to labour shortage, soyabean cultivation being affected in Brazil and Argentina due to dry weather and the Ukraine war affecting sunflower oil supplies from the Black Sea region.