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Highlights

High edible oil prices pinching customers, destroying demand

Price rise yet to hit Indian refiners' purchases

India's April palm oil imports to cross 700,000 mt

New Delhi — India's vegetable oil imports are set for another subdued year in 2021 as refiners pass on high prices to the consumers and a resurgence of the coronavirus pandemic looms large in the country, according to Sandeep Bajoria, CEO of Mumbai-based vegetable oil broking firm Sunvin Group.

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"Vegetable oil consumption fell by about 2 million mt to 21.5 million mt in 2020 [from 2019] and will remain at similar levels in 2021 as high prices pinch the pockets of consumers," Bajoria said in an interview with S&P Global Platts.

In 2019, India consumed 23 million mt of vegetable oils. Of this, 15 million-15.5 million mt was imported while the rest was met by domestic production, according to the Solvent Extractors' Association of India (SEAI) data.

From 2015 to 2019, India's imports of vegetable oils grew by 1.8% annually SEAI data showed.

India's palm oil imports -- which account for roughly 60% of its total vegetable oil imports -- fell from 9.4 million mt in 2019 to 7.21 million mt in 2020, and will mostly stay at those levels in 2021, Bajoria said.

While in 2020, edible oil consumption declined on the year due the lockdown, this year, the second wave of the pandemic and high prices have restrained India's demand recovery from reaching pre-pandemic levels, according to Bajoria.

Palm oil is currently trading at its highest prices in a decade. Prices of crude palm oil have seen solid gains over the last 10 months, rising from $550/mt in June 2020 last year to $1100/mt levels in February.

Similarly, Platts assessed palm oil contract FOB Indonesia has risen from $487.5/mt on May 5, 2020, to $1032.5/mt on March 31, 2021. CPO CFR West Coast India was assessed at $1,097.50/mt for May delivery on April 6.

Higher margins but low sales

The price rise has affected both the consumers and edible oil refiners in different ways, Bajoria said. While refiners are seeing lower capacity utilization at their factories, consumers are facing sharp price hikes for cooking oils.

"Up to 2019, the capacity utilization levels were around 75% and now it has come down to 65% annually. However, margins are still good as despite demand destruction, the value of inventory that [refiners] had, kept on increasing," Bajoria said.

As refiners pass on costs to consumers, the customers are feeling the pinch, which is leading to demand destruction, Bajoria said.

Vegetable oil prices have risen steeply over the last year, with the average price for palm oil currently at around Rupees 160/liter ($2.15/l), nearly double where it stood a year ago.

India imports almost all of its palm oil in its crude form after the government restricted the import of refined oils in January 2020 to safeguard the interests of local refiners. Since then refined palm oil imports have attracted a 45% import duty compared to an effective 35.75% tax rate on CPO.

For April, Bajoria expects Indian edible oil refiners to buy around 700,000 mt to 750,000 mt of crude palm oil. India imports an average of 600,000 mt of palm oil a month.

"From 2022, we believe COVID will be a non-issue. Prices of edible oils will soften and consumption and demand will increase. So 2022 looks like capacity utilization of refiners will go back to normal (around 75%) and imports of palm oil will cross 9 million mt," Bajoria said.

Industry watchers widely expect prices of palm oil to come down to $750-$800/mt by the last quarter of 2021.