Edible oil prices are likely to witness a double-digit rise in the next few months compared to January this year, following geopolitical tensions and Indonesia's decision to ban crude palm oil exports, according to a report.
India Ratings and Research (Ind-Ra) said Indonesia's decision on April 27 to include Crude Palm Oil (CPO) in the scope of its export ban starting April 28 is likely to affect both supply and prices of edible oils globally.
The move could remove about 2 million tonnes of palm oil supply from the global market every month, which is nearly 50 per cent of the global monthly trade volumes, leading to an increase in substitution demand for other oils and thus a widespread rise in edible oil prices.
The ban puts half of India's palm oil supply under a cloud while also increasing consumer inflation, Ind-Ra said in the report.
High imports at a continued depreciating rupee will affect the landed prices of other edible oils as well, which is likely to result in an overall double digit growth in prices over January 2022, in the near term, the report said.
Further, it noted that prices of all edible oils have witnessed a significant surge since the COVID outbreak that triggered supply chain disruptions globally.
CPO prices hit a decadal high of over USD 1,200 in 2021 as production continued to lag consumption growth for three consecutive years (2018-19 to 2020-21), leading to a reduction in inventories.
Price rose to an all-time high of USD 1,900 per tonne in March 2022 as the Russia-Ukraine conflict severely impacted the availability of crude sunflower oil, since Ukraine and Russia account for over two-thirds of the global sunflower oil. Besides, there is the impact of a drought in South America on soybean production, leading to a potential of a large substitution demand, the report said.
Prices of soybean oil and sunflower oil jumped 30-50 per cent over January 2022 to April 2022.
CPO prices have witnessed significant volatility in the past week, owing to the confusion over the products covered under the ban, according to the report.
The export ban is the latest in the series of measures taken by the Indonesian government to control the rising palm oil prices in the country that have jumped significantly in the past one year due to the supply shortages caused by adverse weather conditions and labour availability issues, the report added.
However, Ind-Ra said the current ban is a short term measure to bring an immediate relief from the high prices and supply issues in Indonesia, and a complete ban on the export of palm oil could be difficult to sustain as the country's domestic consumption is around 17 million tonnes, less than 40 per cent of its annual production of close to 45 million tonnes.
The report also said the supply gap created by the ban on Indonesian palm oil exports is likely to lead to a further rise in prices over the near term.
This will have a cascading effect on the prices of other oils such as soybean, groundnut wherein the increase in substitution demand will lead to a price rise.
Sunflower oil prices would remain elevated, given the continuing conflict and supply disruption.
Also read: Palm oil ban: Edible oil industry asks govt to initiate dialogue with Indonesia
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