Market prices in Indonesia's palm oil export ban but consumers likely to feel the pinch

Source: Monecontrol.com

Indonesia has a near-monopoly in the palm oil space, said Shirish Pardeshi, FMCG Analyst at Centrum Broking.

“When you look at the oil consumption in India, roughly about 45 percent contribution comes from refined, bleached, and deodorized (RBD) palm olein and Indonesia is a primary source to the world. Statistics tells about 45 percent of Indonesia's export is sufficient for the world,” Pardeshi told CNBC-TV18.

At 10.5 lakh tonne a month, India remains one of the largest importers of edible oil. Indonesia’s ban on palm oil export will have a direct impact on India as the country imports 5-5.5 lakh tonnes of palm oil each month.

While the markets may have priced in the Indonesian ban, consumers are sure to feel the pinch as palm oil prices have soared 80 percent on a year-on-year basis. It is currently trading at 7000 ringgit per tonne. One Malaysian Ringgit(RM) is equal to INR 17.56.

Since palm oil is used in the manufacturing of many day-to-day items, such as soaps, handwashes, shower gels etc., an export ban from Indonesia will lead to a jump in the prices of these necessities.

Further, people who love to dine out, may have to loosen their purse strings more as palm oil historically has always been the preferred cooking medium for hotels, restaurants and canteens (HoReCa), given its availability at a low price. As restaurant owners have borne the brunt of higher input costs due to inflation, they may choose to pass on the rise in prices of palm oil to consumers.

Fast moving consumer goods (FMCG) companies have been reeling from margin stress and tepid demand woes owing to inflation for some time now. What makes their predicament even worse is the challenge surrounding the pass-through of costs.

Pardeshi believes even giants like Hindustan Unilever (HUL) and Godrej Consumer Products won't be spared from the impact of the Indonesian oil ban.

“All the snacking, chips makers, bakers, biscuits players, and of course the by-product which comes in soaps, noodles, so the likes of Godrej, HUL will also feel the impact because there are some importers who bring crude palm oil from Indonesia. All the top refiners in India, like Adani Wilmar for that matter, Marico, or even the new player, which is Patanjali - these players will get impacted,” he opined.