Edible oil slipping from 10 month high on record imports and higher oil seed production in 2016/17: Angel Commodities Broking

Views of Mr. Ritesh Kumar Sahu (Fundamental Analyst- Agri Commodities, Angel Commodities Broking):

"Edible oil futures prices - Crude Palm Oil (CPO) and Refine Soy oil in the country is falling this week after touching 10 months high last week as government has not taken any decision to hike in import duty on edible oils. Moreover, record imports of edible oil in 2016/17 and forecast for higher oilseeds production for the second consecutive year too pressurize prices at higher levels.

The most active Dec Ref. Soy oil contract on National Commodities and Derivative Exchange (NCDEX) fall 2.8% while most active Nov Crude Palm Oil (CPO) on Multi-Commodity Exchange (MCX) tumble 4 % since last week. However, oilseeds prices in the country have been under pressure due to new season arrivals of the kharif oilseeds and satisfactory start to rabi sowing.

On request from Solvent Extractors' Association of India (SEA), government has consider hike in import duty on edible oil to limit cheap imports and support falling domestic oilseed prices during peak arrival season. This was second time in 4 months that, government reviews duty hike on edible oil. However, it did not take any decision in the meeting held in second week of November as edible oil prices trading higher.

During the last week, edible oil touched 10 months high in November 2017 due to increasing domestic consumption, weak rupees, higher imports and continuous increase in tariff prices on edible oil prices. Moreover, hike in import duty in August 2017 and relatively higher international prices compared with last two years also helped in gradual increase in edible oil prices this year.

On NCDEX, refine Soy oil futures is heading for record seventh consecutive monthly gain in November 2017. The prices for front month contract have increased about 15% in 7 monthsfrom the low of Rs. 609 per 10 kg in May 2017 to a high of Rs. 702.9 in November 2017. Currently, it is trading at Rs. 702.2 levels. During the same period, CPO on MCX gains 13% to Rs. 552 per 10 kg from the low of Rs. 487 in May 2017.

As per the latest press release by Solvent extractors Association (SEA), edible oil imports increase to 150.8 lakh tonnes (lt) in 2016/17, up by about 5% compared to previous year due to 10% jump in palm oil. The imports of soyoil and rape seed oil fall by about 22% in 2016/17. In March 2017, SEA predicted that the import of edible oil may fall to 140 lakh tonnes (lt) in 2016/17 (Nov-Oct) compared to 146 lt in the previous year.

Higher imports are due to higher consumption in the country despite record crushing during the last year on higher oilseed production. As per latest United States Department of Agriculture (USDA) monthly report, edible oil consumption in the country increase by about 21% in last 4 years to 225.8 lakh tonnes in 2016/17.

The other factor was increasing tariff value (base import price) of CPO and Crude soy oil. Tariff values of CPO increase by about 7.1% to $726 per ton from its lowest tariff in August while tariff on Crude Soyoil up by 12% to $896 per ton from its lowest tariff in April. The tariff value or base import prices are revised every fortnight by government and determined taking into account the prices in international markets, as well as changes in the foreign exchange rate.

Hike in import duty for edible oil in August 2017 also support prices of edible oil. Import duty on CPO increased to 15 per cent from 7.5 per cent and on refined to 25 per cent from 15 per cent to curb cheaper shipments. The import duties on other crude edible oils like soya and sunflower have been raised to 17.5 per cent from 12.5 per cent. This increase was done to support oilseed farmers and refiners.

Moreover, higher international prices for soy oil and CPO as compared to last two year and weaker rupees had kept the import prices high for the country. International Soy oil prices trading higher due to good demand for soybean while palm oil prices were higher due to lower stock levels as palm oil production is recovering after El Nino in 2016/17.

Going forward, the edible oil prices may correct in coming month on account of lower edible oil demand due to end of festival season, higher stocks at ports and pipeline compared to last year and higher production & carryover stocks of oilseeds in the country. However, any decision on import duty hike and demand from stockists due to possibility of La Nina in 2018 which will affect palm oil and soybean production in south East Asia and South America respectively may decide the trend of edible oil prices in coming months."

Source : Equity Bulls

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