Analysis: India's palm oil imports hit roadblock as localized lockdowns intensify

India's palm oil imports in 2021 are set to fall for the second consecutive year as pandemic concerns continue to unfold in the country, forcing refiners to dial back production and keep stocks at a bare minimum level, sources told S&P Global Platts.

Chances of a reversal to growth are now all but nil, industry participants said, as a deadlier, second COVID-19 wave runs amok, prompting most states in the country to announce localized lockdowns and night curfews.

This impacts palm oil consumption more than other vegetable oils as it is considered an "outside" oil preferred by the HoReCa sector -- hotels, restaurants and catering -- as it is cheaper and more versatile than other edible oils. Soft oils like sunflower oil, mustard oil and soybean oil are used more widely by households in India, and are expected to be unaffected as more people stay at home.

Industry analysts, brokers and traders see subdued retail demand in the next few months, which is expected to weigh on imports as well as lower stocks due to record high palm prices.

"The current restrictions on movement, quick service restaurants and marriages have trimmed down Indian edible oil consumption by around 400,000 mt to 600,000 mt in 2021 from 2020 levels," Ravindra Rao, head of commodity research at Kotak Securities, told Platts.

"Since state lockdowns this time are not as severe as last year, [annual] edible oil consumption will be down by about 5%-10%, but the major effect will be felt on palm oil," said Sandeep Bajoria, CEO of vegoil brokerage Sunvin Group.

Palm oil imports contracted to 7.21 million mt in 2020 from 9.4 million mt in 2019 due to the month-long nationwide lockdown in March 2020. Prior to this, imports rose at a rate of 1.6% every year since 2016 helped by India's growing population.

India, the largest buyer of palm oil in the world, is mostly dependent on edible oil imports to meet its requirements.

Hand-to-mouth buying

While the state lockdowns this year have allowed the HoReCa sector to stay open at partial capacity, Indian palm oil refiners and bulk buyers are being extra cautious due to high prices of crude palm oil, industry participants told Platts.

"Domestic price of crude palm oil increased by 45.7% to Rs 102 per kg [$1.40/kg] in the current oil year [November 2020-April 2021] in comparison with Rs 70 [96 cents/kg] for the same period last year ... Hence, refineries may not want to purchase and stock up as demand at the time of final consumption may differ," said Natasha Trikha, edible oils analyst at CARE Ratings.

"At such prices [of vegetable oils] nobody will take a risk and keep inventory, what if the prices start falling?" said Anil Bagani, research head at Sunvin Group.

India's HoReCa sector accounts for 40% of palm oil use in the country. Palm oil derivatives are also used in making chocolates, biscuits, noodles, soaps, lipsticks as well as in biodiesel, according to market data.

Uttar Pradesh and Maharashtra -- the two most populous states with a collective population of more than 300 million -- are the most hard-hit by the pandemic and have been under lockdowns and night curfews since end April. As of May 15, all of India's 28 states have imposed partial or complete lockdowns in abid to contain the spread of COVID-19.

"All the port refineries [of palm oil] have already reduced their volumes. The situation is so grim that we are getting offers for washouts too," a source involved in the vegetable oil trade said.

Domestic logistics

Most of the palm oil purchases for May are complete, but internal logistics issues such as a lack of personnel to transport oil tankers are cropping up.

Currently, major ports on both east coast and west coast India are in a "slow mode" due to a shortage of trucks, trailers, labor or have faced unloading restrictions due to night curfews, a source told Platts.

While the supply of edible oils is adequate in south India as there are many ports with existing crude palm oil stocks, landlocked states like Uttar Pradesh, Himachal Pradesh and Punjab have had trouble fulfilling orders due to transportation issues, industry participants said.

"Refiners in Andhra Pradesh, which has two major edible oil ports -- Kakinada and Krishnapatnam -- are receiving lesser out-of-state orders as logistics are uncertain," said Aditya Jeripotla, head of the edible oils and oilseeds analysts division at commodity research company TransGraph.

Due to a backwardated market structure, India's palm oil imports for February and March were well below demand, which reduced port stocks to around 180,000 mt by end March. This led to a rush in orders for April and May as ports did not have stocks to even last a week, Jeripotla told Platts.

"I expect May-end stocks to recover to 380,000 mt. This is below the five-year stock holding pattern so underlying demand is still strong but price risk will slow orders," Jeripotla said.

However, all the industry sources who spoke to Platts said the elasticity of India's palm oil demand will depend solely on crude palm oil prices in the international markets at present.

"If prices move downward, people will book more irrespective what the demand is ahead. The situation is quite complex. There is no straight answer right now," Bagani added.