In what could turn out to be a party time for consumers, edible oil prices crashed further on Tuesday with crude palm oil (CPO) plunging to nearly a year-low and soyabean oil (SBO) slipping to over a two-year low.
On Bursa Malaysia Derivatives Exchange, CPO dropped to the maximum permitted level of 10 per cent mid-day to below 4,000 Malaysian ringgit (MYR) ($904) a tonne before recovering a tad. On the Chicago Board of Trade, SBO dropped nearly eight per cent on Monday night.
Another 5-7 per cent fall
“If this trend, which many point to the 2008 situation, continues, CPO prices could drop below 3,000 MYR ($678), “ said Abdul Hameed, Director-Sales, Manzoor Trading, Lahore in Pakistan.
Sandeep Bajoria, CEO, Sunvin Group, told the CNBC television channel that there could be another 5-7 per cent fall in CPO prices before they can stabilise.
He said palm oil prices have crashed as there were plenty of stocks with no takers. “When prices fall like this, buyers would keep off and watch them fall. They will enter only when they are convinced that prices have hit the bottom,” Bajoria said.
Hameed said fundamentals looked bearish from all sides on excess stock and low demand. “Inventories are rising in main producers Indonesia and Malaysia putting pressure on prices. Malaysian inventories may touch 2 million tonnes by end of August,” he said.
Peak production ahead
Sudhakar Desai, President, Indian Vegetable Oil Producers Association (IVPA), said the fall in CPO price could see demand re-emerge in India. “Prices of CPO and SBO have dropped 38 per cent peak levels,” he said.
But Hameed said the edible oils market was concerned over the peak production season for palm oil starting now. “Palm oil is exerting pressure on other vegetable oils as well as SBO. This has also resulted in sunflower oil slipping,” he said.
According to Solvent Extractors Association of India data, landed prices of CPO are currently $1,100 against $2,100 during the peak, while SBO has dropped to $1,350 from $2,100. Sunflower oil rates have slid to $1,650 from $2,350.
Reflection in retail outlets
“The fall will take a week or two to reflect in retail outlets. This year, it could be party time for consumers as they will get relief from the high prices they paid for edible oil last year,” Bajoria said.
Packaged edible oil prices have already declined to levels of ₹110 a kg from ₹170 a few months ago, he said. “The fall will be a good relief for customers from the high prices they have seen in recent months,” Desai said.
On Tuesday, CPO September futures closed at 3,956 MYR a tonne, October at 3,978 MYR and December at 4,007 MYR. On the Chicago Board of Trade, July contracts ended at 59.24 cents a pound, August at 58.59, September at 57.52 and October at 57.01.
Indonesia policy flip-flop
Experts such as Bajoria and Hameed said Indonesia’s policies were also to be blamed partly since its ban on palm oil export for almost a month from April 24 first pushed prices higher and when it lifted the ban, it led to a glut.
Indonesia has given permission to export at least 2.7 million tonnes of palm oil.
On the other hand, Indonesia growers selling fresh fruit bunches (FFB) of oil palm when Malaysian growers are refusing to sell at low prices has compounded the situation.
“What should we do with so much palm oil?” wondered an analyst.
The fall in edible oil prices is also partly due to a crash in crude oil prices since high prices for the energy commodity results in CPO and other edible oils such as rapeseed being used for bio-diesel.
Edible oil prices had surged since the Covid pandemic broke out as oil palm plantations faced labour shortages, while dry weather affected soyabean production in South America.
Prices shot up sharply this year soon after the Ukraine war broke out as sunflower oil shipments from Kyiv, the main supplier of the cooking oil, were affected. “Even sunflower oil is now available from Russia and other countries such as Argentina and Moldova. Also, Ukraine oil is being shipped through road,” said an analyst.
Bajoria said India had ample stocks but if prices were to drop further, the Centre could raise the import duty from October when kharif oilseeds crop hit the markets.
Anand Chandra, Executive Director and Co-Founder, Arya.Ag, said the drop in edible oil prices will ease inflation. Major FMCG companies will benefit from the reduction of raw material prices. Storage of oilseeds in the warehouses might get extended until prices improve in the market. “This may also lead to increased demand which will enable farmers producing relevant commodities to derive optimum value for their farm produce,” he said.
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