28/03/2009 (The News, International), Karachi - As edible oil prices fell at the end of 2008, the effect failed to transfer to the masses. Major oil companies, who were quick to shift the burden onto the people when prices rose in May last year, are holding out on maximum profits despite government directives to lower prices.

Palm oil prices hit their peak in March 2008, hovering to over $1,026 per metric ton in July. Since then, the prices of palm oil fell to an all-time low in November to $433 per metric ton. The effect of the increase was sharply felt, with all private companies almost doubling their prices of edible oil from Rs75 per litre in January 2008 to nearly Rs150 in August-September same year.

Unfortunately, while edible oil prices came crashing down along with crude oil, going down from $147 a barrel to under $80 a barrel over the corresponding time frame, private manufacturers are refusing to lower prices.

The government too announced in September that edible oil prices be fixed to Rs115 per kg, slashing prices by five rupees as a result of which a further decrease in prices was expected. Private oil companies, however, failed to respond. Pakistan imported around 1.27 million metric tons of palm oil from Malaysia in 2008.

A source at one of the leading oil packaging companies of Pakistan said that consumer considerations have been taken into account regarding pricing. He also added that the benefits of lower oil prices had been passed on. Explaining the cost factor, he said that the cost of electricity, alternative power generation, labour, packaging and distribution had gone up in the past year.

Admitting that the price of soy bean and canola oils had come down, he said that the increase in costs of other factors of production did not help the cause, resulting in zero change. Now, however, the prices are on a downward trend and local prices have been reduced to under Rs130 per litre. Contrary to this, the international markets registered a 2.7 per cent increase this week.

While major oil companies claim that they use only soybean and canola oils as the primary cooking oil with some blending with ‘soft oil’, caustic soda, bleaches, vitamin additives, citric acid, salt and other chemicals (for refining), the real composition of oil remains locked. On the other hand, ghee is composed of palm oil, palm stearine and palm olien (extracts of the palm fruit from which palm oil is extracted).

Meanwhile, traders complain that prices have remained constant for the last three months. A mean price calculated for branded oil and ghee showed a constant price of Rs130 and Rs120 respectively. Over the corresponding time period, the average price of loose oil (a compound of RBD Palm Olien) remained at Rs95 and loose ghee (Palm Olien and Palm Stearine) was at Rs90.

Currently, the international market is tightening its grip on supply, which is expected to increase the price for oil over the next quarter.

However, with the oil prices falling in previous months, the effect is unlikely to be transferred to the local public, who continue to suffer. It seems that it is the recovery period for oil companies who were at a loss and also broke-even in 2008.