Edible oil prices likely to rise 10%

Country imports 45% of its total consumption; depreciating rupee likely to increase cost of imports.

Edible oil prices are likely to rise 10 per cent by the end of the next quarter, due to high cost of the import-reliant commodity. A drastic depreciation in the rupee value against the dollar has made the commodity expensive.

India imports nearly 45 per cent of edible oil to meet the overall consumption of an estimated 15.5 million tonnes (mt), as stagnant domestic output has failed to keep pace with the consumption growth. Edible oil consumption has risen steadily by six-seven per cent annually for several years.

Spot mustard oil prices have risen by 8.37 per cent in the last three months. Prices collated by the Multi Commodity Exchange (MCX) showed a rise of 8.37 per cent in mustard oil to trade currently at Rs 699.3 per 10 kg on November 26, as compared to Rs 645.3 per 10 kg on September 2. During the same period, the rupee has depreciated a drastic 14.13 per cent to trade at 52.26 on Friday, against 45.79 three months ago.

“The fall in the rupee has hit domestic refineries badly, as the extent of fall in the Indian currency has helped raise the price of the import-oriented commodity. A majority of independent refineries, that are not able to pass on the price increase to consumers, will face a severe threat of closure,” said Nadir Godrej, managing director of Godrej Industries Ltd, one of India’s largest palm oil producers.

While unveiling the four-day, ‘Third International Conference and Exhibition on Soaps, Detergents & Cosmetics’ to be held in Mumbai during December 10-13, Satish Wagh, chairman of Basic Chemicals, Pharmaceuticals & Cosmetics Export Promotion Council, said, “The cost of all products like cosmetics, soaps and detergents will go up with the fall in rupee.”

Refined mustard oil remained resilient in the Vashi Agricultural Produce Marketing Committee (APMC), gaining 3.6 per cent to trade at Rs 720 per 10 kg on Saturday, as compared to Rs 695 per 10 kg about three months ago.

Price rise continued, albeit marginally, in mustard oil on Monday. The commodity jumped marginally by Rs 20 in Delhi to trade between Rs 1,075 and Rs 1,175 a tin (16 kg each). The demand remained thin, as stockists prevented a moderation in prices due to supply of substitutes.

Kharif oilseed crushing is currently at a peak. Hence, the supply of refined soyoil, groundnut oil and sesame oil has been rising continuously since a fortnight. Consequently, the prices of these oils have fallen which experts believe will rise in coming months. According to Siraj Choudhary, managing director (edible oils) of Cargill India, “The rupee fall has made life tough for refineries. But, surprisingly, the marketing strategy has not changed. Being an import-reliant commodity, edible oils have become costlier in the domestic market and the trend is likely to continue in future as well as.”

Generally, veg oil refiners import crude palm oil and process in domestic refineries to produce edible grade palm oil for blending with other oils.

“Veg oil refiners are not going to be hit by both, price rise and rupee depreciation. Beyond a point, the cost burden would be passed on to consumers. If the trend continues, edible oil prices would continue to move upwards,” said B V Mehta, executive director of the Solvent Extractors’ Association.

Mehta attributed the peak crushing season for a fall in prices of seasonal oils. Groundnut oil fell 16.7 per cent to Rs 850 per 10 kg, while refined soybean and sunflower oil fell 3.7 per cent and 3.03 per cent to Rs 621 and Rs 640 per 10 kg, respectively on Monday.

Dinesh Shahra, MD, Ruchi Soya Industries, said, “The dwindling rupee is putting pressure on Indian refiners. Crushing margins were low already, due to high import duty on crude and RBD. With the dollar rate suddenly going up, the refining industry is facing difficult times.”