Palm oil prices to remain elevated in near term; La Nina in focus: ICRA

A release issued by ICRA said that the global prices of palm oil have risen sharply by 50% from the lows of May 2020, with pick-up in demand emanating from re-opening of economies.

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As palm oil constitutes a significant proportion (more than 40%) of the total Indian edible oil consumption, the increase in palm oil prices has led to increase in other edible oil prices over the past few months.
Rating agency ICRA on Wednesday said that palm oil prices in the near term would remain elevated and would largely depend on the outcome of La Nina weather pattern in Southeast nations. Palm oil is mainly consumed in food industries such as bakery products and HoReCa (hotels, restaurants and catering) segment, while household consumption remains limited.

A release issued by ICRA said that the global prices of palm oil have risen sharply by 50% from the lows of May 2020, with pick-up in demand emanating from re-opening of economies.

At present, the prices are higher than pre-covid levels despite the demand continuing to remain muted. This is largely on account of supply side issues in large palm oil manufacturing countries, Indonesia and Malaysia, the release added.


As palm oil constitutes a significant proportion (more than 40%) of the total Indian edible oil consumption, the increase in palm oil prices has led to increase in other edible oil prices over the past few months. Following the nation-wide lockdowns forced by the outbreak of Covid-19, in terms of demand, Indian palm oil imports dropped by 25% Y-o-Y during H1 FY21.

Commenting on the impact of high prices, Mr. K. Ravichandran, Senior Vice-President & Group Head, Corporate Ratings, ICRA,said in the release We believe that while the higher rainfall induced by the La Nina weather pattern could improve the palm fruit yield, higher than average rainfall could disrupt the production in the coming months which could result in firm palm oil prices over a longer period. Further, with the opening up of key end-user industries since June -2020 the demand from HoReCa (hotels, restaurants and catering) segment has started to improve gradually. Nonetheless, for full-year FY21, the consumption would continue to stay moderated and ICRA expects total palm oil consumption to remain 15% lower in FY21.”

Moreover, the import value of major edible oils (palm, sunflower and soyabean oils) stood at Rs. 67,100 crore in FY20,comprising 2% of the total imports of India.
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The release said that due to a sharp rise in the prices during H1 FY21, the total edible oil imports increased to Rs. 35,100 crore in H1 FY21 (8% Y-o-Y increase) in spite of a 13% Y-o-Y decline in the import quantity.

ICRA expects the edible oil imports by value to increase by 12 -15% in FY21 despite the decline in volume.Further, with restriction of refined palm oil import, the domestic palm oil demand is necessarily to be met through domestic palm oil refiners. The moderation in palm oil demand (25%) remained lower than price increase (50%), hence, there has been an increase of 20% -25%of turnover for the palm oil refiners.
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