Stocks relatively tight !
* Domestic edible oil production and Imports for the Nov‐June period declined by 0.3% and 12% year on year respectively –outpacing the decline in edible oil demand of 6% year on year. Keeping supply tight, despite COVID related demand decline.
* Edible oil stocks have replenished from the low 0.72 Mln Mt levels it had dipped to on July 1st to 1.2 Mln MT as on Oct 1st Importantly India’s monthly edible oil requirement is estimated at 1.9 Mln MT and the country operates normally at 30 days stock levels. In the COVID era with edible oil demand having declined in the out of home consumption sector‐ monthly demand can be estimated 10% lower from normal at 1.7 Mln MT. This indicates that stocks as on Oct 1st is able to cover only 21 days of demand and is relatively tight.
* India Southwest monsoon saw delayed withdrawal this year. Also there were farmer strikes at key soybean production state of MP in Sep against the new Farm Reforms Both these factors could reduce crushing pace , on delayed new crop arrivals and continue to keep domestic edible oil supply relatively tight into Oct. Edible oil imports in Oct 20 is estimated at 1.25 Mln MT down 6% from year ago levels‐ anticipating large Kharif oilseed crushing pressure‐ which could stand delayed.
* Global markets are tight. Malaysia’s CPO inventory wasrecorded by MPOB at a tight level in September at 1.73 Mln Mt, down 30% from the same month last year at 2.45 Mln MT. Malaysia's production of CPO has been flat at 20 Mln MT, since year 2017 into 2020 and this year Indonesian production is also estimated to remain flat at 45 Mln MT. Global demand for palm oil in COVID year is estimated down 2 MLN MT‐ which is matched by an equivalent production decline‐ keeping the balance sheet relatively balanced and prone to rallies on supply disruptions. CIF India price for CPO has risen 25% from USD 595 /MT in April 2020 to USD 745/MT in Sep 2020.
* Soft oils CIF India price of soyoil and sunoil have risen 29% and 35% from April 2020 to USD 855 /MT and USD 1015 respectively in Sep 2020 Delays in Brazil sowing amid dry weather as 2020 experiences La Nina conditions, ( below normal monsoon in Southern Hempishere) are being reported. This has resulted in flat OND price curve for CIF India soyoil (no discount in far months) and also higher flat price of USD 880 .MT‐ which indicates price strength in landed price of soyoil imports could continue.
* Finally, India continues to trade at import disparity (local prices are below import price) in CPO and soyoil of USD 15/MT and technical correction in international prices following the sharp gains‐ could keep India prices relatively supported
* The cure for high price is high price‐therefore sharp rally in edible oil prices could result in demand destruction in India to be higher than the 6% decline in year on year demand‐ which has taken into account only the out of home consumption decline due to Covid disruptions. India Q1FY21 GDP was ‐24% vs. 3% last quarter and 5.2% in Q1FY20‐ falling income levels and high price of edible oils could result in families trimming down food budget decline of 2.5 Mln MT in 2020‐ the first decline since year 2016. Governments could reduce support for rising mandates of biofuels‐ as the oil prices are trading at sharp premiums to crude oil and would not wish to pass higher prices to consumers during Covid related slow growth phase.
India edible oil S&D remains skewed towards relatively tight stocks. Given India’s edible oil import dependence, the tight global market supply for CPO and soft oils‐ implies supply shortages and price gains could continue to outpace demand decline related price weakness. We remain bullish on Soyoil and CPO futures.
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