India’s edible oil import has sharply increased in the recent years due to higher availability of edible oil in world market at lower prices and limited domestic oilseeds crushing.

During the Oil Year 2014-15 (November 2014-October 2015), overall edible oil import has increased by 23.64 per cent or 27.9 lakh tonnes (lt) over the previous year, according to data compiled by Solvent Extractors Association of India (SEA).

Due to higher supplies, prices of Crude Palm Oil (CPO) touched a multi-year low of ₹352/10 kg during August 2015.

India meets more than 60 per cent of its annual edible oil demand of 17-18 million tonnes (mt) through imports and palm oil makes up about 70 per cent of total vegetable oil imports.

In 2014-15, nearly 9.5 mt of palm products imported from Indonesia and Malaysia, which is nearly two-third of total edible oil imports of 14.4 mt.

In 2014-15, the country imported 20 per cent more palm oil products it imported in previous year. Thus, domestic CPO price trend normally follows the price trend in Bursa Malaysia.

Price movement After its slide in August 2015, prices gained about 17.3 per cent during September-October 2015 on reports of strong El Nino weather pattern may affect world palm oil production.

However, prices were under pressure during October-November the same year due to supply pressure of kharif oilseed and record import of edible oils in October but soon recovered about 10 per cent in December on reports of drop in palm oil stock. India’s current stock of edible oil in various ports and pipeline as on December 1, 2015, according to the latest SEA data, is at 24.30 lt against a monthly requirement of 16 lt.

High stock position As per latest SEA Circular, India is the largest market for edible oil and it is expected that CPO, RBD palmolein and soyabean oil may further be dumped in the country due to weak physical demand in the world market – China and Europe.

The economic slowdown in China results in lower palm imports. China cut its palm imports from Malaysia by about 45 per cent in December compared to November 2015. Moreover, European countries too slowed down their imports due to seasonal reasons, as palm oil tends to solidify in cold weather.

Moreover, lower crude oil prices and rising competition from soyabean oil is hurting the demand for palm oil in world market for its blending in biodiesel.

Outlook CPO prices have already factored for the output loss forecast for 2016 as prices have recovered about 20 per cent from their record lows in 2015.

We expect the prices to be range-bound (₹400-425 per 10 kg) during first three months of 2016 as the world economy provides a bearish sentiment, as competing oils – especially soyabean oil – is abundantly available in Brazil, Argentina and the US.

Currently, CPO fundamentals looked quite balanced and need further price shock for any bullish outlook.

The writer is Associate Director - Commodities & Currencies Business, Equity Research & Advisory - Angel Broking. Views are personal.

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