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

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

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Indonesia is one of the largest exporters of palm oil. Against the backdrop of its recent ban on crude and refined palm oil, stocks of Indian players in the edible oil space surged during Thursday's morning session, indicating that the market has already priced it in. However, consumers are expected to feel the pinch as prices of daily items may increase in the wake of short supply of palm oil.

Market prices in Indonesia's palm oil export ban but consumers likely to feel the pinch
Shares of vegetable oil companies largely traded positive on Thursday, shrugging off the impact of Indonesia widening the scope of its export ban on raw materials for cooking oil to include crude and refined palm oil. The Street expects these companies to enjoy a higher pricing power in the face of a shortage.
At 12.16 PM, Ruchi Soya stock has gained 6.39 percent and is trading at Rs 1,174 on the NSE, whereas edible oil giant Adani Wilmar stock has lost its earlier gains of 2.82 percent, and is currently quoting at Rs 829 apiece on NSE, down by 1.37 percent.
Meanwhile, share prices of companies like Gokul Agro Resources also traded in the green, gaining 5 percent during the morning session alone, taking its current share price to Rs 118.55. Anik Industries, on the other hand, is up by a whopping 8.27 percent taking its current stock price to Rs 36.65 on the NSE.
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.
How will it impact consumers?
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.
How will it impact fast moving consumer goods companies?
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.
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