27/03/2009 (The Hindu Business Line), Mumbai - After reaching unprecedented highs in March-April 2008 caused by rising demand, falling inventory, lower supplies and speculation, global vegetable oil prices plummeted to multi-year lows in a short period of 3-4 months during the latter half of the year.

For instance, soyabean oil crashed from around $1,400 a tonne to about $700 a tonne. Palm oil prices collapsed from nearly $1,200 a tonne to as low as $450-500 a tonne. For the last several months, prices are hovering around these levels, with little prospect of a sharp recovery anytime soon.

Domestic oils too reflected the decline in international market as the country’s dependence on imports is close to 50 per cent. Prices of indigenous and imported oils generally tend to converge, especially given that customs duty on imported raw oils is zero as also blending (often unauthorised) of high priced oils (like groundnut oil) with low priced oils like palmolein.

In the wholesale price index, for edible oil as a category the weight is 2.75. From 196 in March 2008, the index declined through the following months to 192 in September 2008 and further down to 183 in January/February this year. As of March 7, it stood at a low of 177.2, the lowest since December 2007.

WPI movement
Wholesale price data showed groundnut oil (expeller) that ruled at an average of Rs 73,500 a tonne during March 2008 declined to Rs 53,000 a tonne a year later, while refined soyabean oil moved down from Rs 66,700 a tonne to Rs 44,500 a tonne during the same period. Refined palmolein too declined in absolute terms from Rs 60,700 a tonne to Rs 36,800 a tonne by mid-March 2009, but the steepest absolute fall was witnessed in refined sunflower oil whose prices collapsed from a high of Rs 78,700 a tonne in March 2008 to around Rs 45,500 a tonne now.

The semi-wholesale market in Mumbai has largely moved in line with the fall in wholesale prices over the last one year. However, retail price changes present a slightly different picture. While, admittedly, there has been a fall in retail rates, the extent of fall has been somewhat muted and staggered. This is because in a falling market, producers usually resist cutting prices until the time competition forces them to do so.

In the last three months, in addition to domestic production, large-scale (higher-than-normal) imports of low priced vegetable oils have generated tremendous supply and inventory pressure that has forced a reduction in consumer prices. Several producers Business Line spoke to are keen to liquidate stocks and ease the inventory overhang even if it meant lowering prices. The risk of carrying inventory seems to be greater than any possible reward it may bring.

Seasonal factors
Indeed global cues and seasonal factors (lower cooking oil use during summer months) too are playing a part. Groundnut oil (filtered expeller) at the retail level is currently sold at Rs 70 a kilogram, down from about Rs 90 a kilogram exactly a year ago. Refined sunoil has shown the sharpest decline in retail rates from around Rs 88/kg to the current Rs 55/kg following a steep drop in international rates.

Refined soyabean that had exhibited a surprise premium (Rs 80/kg) in March 2008 for a host of reasons including speculative expectations of an extended bull run, is currently sold at Rs 55/kg. The lowest, as expected, is refined palmolein available at Rs 45/kg, down from Rs 68-70/kg a year ago.

Without doubt, cooking oils are available to Indian consumers at prices that are not unfriendly. The price fall has resulted in improved demand. Anecdotal evidence from trade intermediaries suggests an improvement in both household and institutional demand in the last 3-4 months. However, seasonally, cooking oil demand usually declines in the summer months. If the current prices were to hold during the festival months from August to October, consumers will have reason to rejoice.