Palm oil prices slump to 20-month low — what's hurting the commodity and aiding FMCG firms

Palm oil is the most consumed cooking oil in the world, accounting for 40 percent of global consumption, followed by soyabean oil at 32 percent and canola oil at 15 percent. Palm oil accounts for nearly 60 percent of global vegetable oil shipments, and top producer Indonesia accounts for around a third of all vegetable oil exports.

During the three-week export ban, Jakarta's stocks ballooned to 6.69 million tonnes by end-June from around 4 million tonnes at the end-2021, back to 4.5 to 5 million tonnes by end-September. The government increased shipments to help bring down the stocks.

The government was aiming to bring down local edible oil prices but, in the process, caused world prices to surge, hitting a record 7,268 Malaysian ringgit ($1,598) per tonne.

Producers in Malaysia, the second-largest palm oil producer, along with rival oils like soy oil and sun oil, rushed in to grab Indonesia's market share. Malaysia has also displaced Indonesia so far in the 2021/22 marketing year to end-October as the top palm oil supplier to India, according to SEA data.

Indonesian producers are now taking back business from their Malaysian neighbours with aggressive discounting. Indonesian Trade Minister Zulkifli Hasan also urged India to buy more palm oil from his country when he visited India last month, Reuters reported quoting a senior industry official who attended the minister's meeting with Indian buyers.

Nilesh Shah, Envision Capital, told CNBC-TV18 that cooling palm oil prices are good for select FMCG companies. “Just about three, four months back, we were talking about how palm prices were raging. But clearly, the fall has been sharper than expected. So, this is extremely good news, especially for some of the consumer-facing companies," Shah said.

"I believe that commodity prices can fall a lot more than they have. And that could be a hugely positive surprise for India and Indian companies,” Shah added.

India imports around 10.5 lakh tonnes of edible oil a month and finished FY22 with an import of 13 lakh tonnes, down from 15 lakh tonnes the previous year. India’s import bill for edible oils in FY22 jumped to Rs 1.4 lakh crore, up 72 percent from Rs 82,123 crore in FY21.