Adani Wilmar jumps, FMCG stocks sink after Indonesia bans refined palm oil export

Shares of edible oil manufacturers gained on Monday after Indonesia's ban on palm oil exports shocked global edible oils markets that already reached record high prices this year, and sparked alarm among major importers of the cooking medium. The country is the world’s top palm oil producer.

Indonesia has clarified that the ban would not be applicable to crude palm oil exports but will be applicable to refined, bleached, deodorised (RBD) palm olein.

While Adani Wilmar Ltd was up 3.68 percent at Rs 755.00 while Raj Oil Mills Ltd gained close to 10 percent at Rs 75.25. Agro Tech Foods Ltd was up over 2 percent and Gokul Agro Resources Ltd was trading 5 percent higher.

However, Patanjali-owned Ruchi Soya Industries, the largest manufacturer of edible oil in India, was down 1 percent at Rs 948.60.

Palm oil is the world's most widely used vegetable oil and is used in the manufacture of many products including biscuits, margarine, laundry detergents and chocolate.

The hit is severe for India, which is the world’s largest importer of edible oils, specifically the highest importer of palm oil and soyabean oil. While soybean oil hit an all-time high of Rs 83.21, up 50 percent year-to-date, palm oil was up 34 percent YTD while Canola oil was up 15 percent.

Atul Chaturvedi, President, Solvent Extractors’ Association (SEA) of India told CNBC-TV18 that trends across all edible oils are bullish. “India will have to pay high amounts for edible oil imports. Indonesia produces 3.5-4 mt palm oil every month; it cannot ban exports for long,” he said.

Sudhakar Desai, President Indian Vegetable Oil Producers' Association also said that Indonesia can’t afford to ban exports for more than three weeks. "There will be a sharp drop in prices once Indonesian supply hits the market,” Desai said. He added that 70 percent of palm oil consumption comes from HORECA (Hotel, Restaurant, Cafe) and food companies.

Sunflower oil supplies in India have already been affected due to the Ukraine-Russia war, adding pressure to household budgets. Even before the news broke out, edible oil prices were trading at their highest prices ever — around 45 percent higher than their previous highs recorded in 2008 and then in 2011.

Fast-moving consumer goods (FMCG) stocks like Hindustan Unilever (HUL), Britannia Industries, Godrej Consumer Products, and Marico took a hit and were down between 4 percent and 6 percent on the BSE. At 09:30 am; the S&P BSE FMCG index was down 1.7 percent, as compared to a 1 percent decline in the S&P BSE Sensex.

Rahul Arora, CEO of Nirmal Bang Institutional Equities said it is a bit of a tricky place here because, in the last decade, the FMCG companies were not so much about compounding top line as they were about margin expansion and profit growth. “Now the problem becomes if your top line does not continue to expand at close to double-digit territory, and you continue to hit by margin pressure, the stock price rerating could be a little delayed.”

“So my sense is, next two quarters, you might be seeing a little more pain in terms of earnings and stock prices. You may want to buy them after the Q4 numbers and not rush into buying them yet. There may be a little bit more of a correction left. But if you're looking at the stocks compounding, if you're looking at buying and holding these over the next five years, I think they will compound well. But if you're looking to trade them in the short-term, I probably wait another quarter before I put my money into them,” Arora added.

(Clarification: In an earlier version of the story, it was not clear if Indonesia had banned all palm oil exports, The nation has now clarified that the ban would not be applicable to crude palm oil exports but will be applicable to refined, bleached, deodorised (RBD) palm olein.)