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Week Ahead: Edible oil prices unlikely to fall further during festive season

18 Oct 2021 10:14 am
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MUMBAI, 18 Oct (Commodities control) – Indian market is unlikely to see more fall in edible oil prices during this festive season as domestic consumption demand is expected to remain firm. Simultaneously, Malaysian palm oil prices may remain in higher ranges on strong Indian and Chinese demand. The domestic edible oil market has already witnessed recovery in the last session which indicated that import duty cut will have a little impact on the prices during this festive season and the local market will take the direction from the international market.

The consumption demand for palm oil, the cheapest in the edible oil complex, is expected to remain firm in India during the festive season. However, there is a chance that demand may shift from palm oil to soft oils after India's duty cut made soft oil more attractive, but prices of palm oil are likely to trade firm in near term taking direction from the Malaysian market.

At the same time, power crisis in China will impact soybean crushing which will result in higher Chinese purchases in palm oil, said a trade analyst.

According to an assessment of Malaysian Palm oil Board, “Toward the end of 2021, production and export of palm oil are expected to show some improvement y-o-y, hence bring about manageable stocks and cause some correction in CPO price. In view of the situation, CPO price in 2021 is expected to remain high at average of RM 4,100 per tonne.

From a historic perspective, August and September usually represent a weak seasonal period for crude palm oil with average monthly average monthly returns at -0.70 percent to -1.5 percent respectively. On the other hand, fourth quarter (Oct-Dec) represents the best seasonal phase with average monthly returns being north of 3%.

Soybean oil also continued its rally for the fourth session on the Chicago Board of Trade during Asian hours on Monday as strong demand for the U.S. supplies underpinned prices. U.S. exporters sold soybeans either to China or "unknown destinations" for a third consecutive day on Friday. U.S. exporters sold 132,000 tonnes of soybeans to China for the 2021/2022 marketing year, the USDA said on Friday.

The U.S. soybean crush hit a three-month low in September and fell below an average of trade estimates, while soyoil stocks at the end of last month rose for a third straight month, according to data released by the National Oilseed Processors Association on Friday.

The vegetable oil prices are also gaining supports from crude which rallied to a multi-year high as the U.S. crude, WTI futures rose to the highest level after October 2014 while Brent crude oil futures surged to the highest since October 2018. The firmer tone in crude oil prices is raising the consumption prospects vegetable oil in biofuels.

In a bid to reign in the continuous rise in the cooking oil prices, the Central Government slashed the basic duty on Crude Palm Oil, Crude Soybean Oil and Crude Sunflower Oil from 2.5% to Nil. The Agri-cess on these Oils has been brought down from 20% to 7.5% for Crude Palm Oil and 5% for Crude Soybean Oil and Crude Sunflower Oil. The basic duty on RBD Palmolein Oil, Refined Soyabean and Refined Sunflower Oil has been slashed to 17.5% from the current 32.5%. The duty reduction is effective from 14th October, 2021 upto 31st March, 2022.

Before reduction, the agricultural infrastructure cess on all Crude Edible Oils was 20%. Post reduction, the effective duty on Crude Palm Oil is 8.25%, for Crude Soybean Oil and Crude Sunflower Oil,it has been reduced to 5.5% each from earlier 22.5% for Crude Palm Oil, Crude Sunflower Oil, Crude Soyabean Oil and 32.5% for RBD Palmolein, Refined Soyabean Oil and Refined Sunflower Oil.

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