India’s demand for domestic palm oil still has not reached pre-pandemic levels, says RHB Research

India’s demand for domestic palm oil still has not reached pre-pandemic levels, with year-to-date (YTD) November 2021 import is 13 per cent below YTD November 2019.

Further, palm oil market share out of total edible oil imports is rather flattish, currently, at 61 per cent, RHB Research said.

The bank-backed research firm also noted that Covid-19 continues to affect demand in the hotel, restaurant and cafe (HORECA) sector as India is currently undergoing a surge in cases due to Omicron.

“While India is not in a full lockdown mode, there are restrictions in place in certain states in the red zones, including a ban on in-restaurant dining, 50 per cent capacity workforce, and the shutdown of schools and gyms, amongst others.

“As palm oil is most commonly used in the HORECA and industrial sectors, these restrictions will have an impact on demand in the future.

“Also, we understand Indian buyers are now buying palm oil on a ‘hand-to-mouth’ basis, given the high prices currently,” it said in a note today.

RHB said as edible oil prices remain high, the Indian government has taken various measures to curb inflation, such as reducing import duties, imposing stock holding limits, and suspending trading of futures and options contracts for edible oils oilseeds and agricultural products.

India’s import duties on edible oils are the government’s primary tool to reduce inflationary pressures, and changes to the rates have been occurring more regularly over the last year.

RHB Research also said the Malaysian Palm Oil Council (MPOC) expects India’s palm oil imports to be five per cent lower in 2022, to 8.2 million tonnes.

“The main reason for this is the current high CPO prices, inhibiting demand.

“Secondly, India is expected to record higher domestic oilseed production in 2022, estimated at 10-15 per cent growth, coming mainly from rapeseed output, which will dampen import demand.

“Thirdly, the current import duty structure favours crude soybean oil (SBO) as the duty imposed on SBO is 5.5 per cent, 275 basis points (bps) lower than the duty imposed on CPO (8.25 per cent), while refined palm oil is subjected to a higher duty of 13.75 per cent.

“Given the negligible SBO-CPO price gap currently, it is relatively cheaper to import SBO in India,” RHB Research said.

Meanwhile, RHB Research also said that CPO supply fundamentals this year is set to improve, with moderation in prices in the second half (2H) of 2022.

Besides that, the firm said plantation companies’ valuations this year would be dampened by environmental, social and corporate governance (ESG) risks.

RHB Research has made no changes to its ‘Underweight’ call on the domestic plantation sector.
Source: The Straits Times