Indonesia palm oil export ban dents FMCG stocks; oil companies rally

Indonesia’s ban on palm oil exports shocked global edible oils markets that already reached record high prices this year, and sparked alarm among major importers of the cooking medium.

Adding more to the worries, there are reports that Malaysia has also increased taxation on exports of palm oil, citing domestic shortages, making it more expensive for importers like India.

Following the update, shares of Britannia Industries tumbled about 6 per cent to Rs 3,150, before paring up half of the losses during the session.

DFM Foods, Tasty Bites Eatables, ADF Foods, Nestle India, Mrs. Bectors Food Specialities declined up to 2 per cent during the session.

On the contrary, edible oil players like Gokul Agro Resources hit upper circuit of 5 per cent to Rs 101.95. Adani Wilmar also zoomed another 5 per cent to Rs 763, its new 52-week high.

Microcap edible oil firm Poona Dal & Oil Industries hit upper circuit of 20 per cent. Another microcap Kriti Nutrients zoomed 13 per cent, whereas Raj Oil Mills rallied 10 per cent.

Palm oil is the world’s most widely used vegetable oil as it accounts for about 40 per cent of supply of top four edible oils, and is used in the manufacture of many products including biscuits, margarine, laundry detergents and chocolate.

India is the top palm oil importer, with a demand of roughly 8 million tonnes of palm oil per year, which is supplied by Indonesia, Malaysia and Thailand. India is followed by China, Pakistan, Bangladesh, Egypt and Kenya in terms of buyers.

Global palm oil production slumped in 2020 and 2021 due to a drop in migrant labour on plantations across Southeast Asia, which led to reduced fruit bunch collection and lower fertilizer applications for trees.

Indonesian authorities previously restricted exports of the edible oil between late January and mid-March to try to control domestic cooking oil prices.

Brokerage firm Prabhudas Lilladher believes increase in prices of palm oil will further impact the margins in 1QFY23.

“We don’t rule out further cuts in margins in 1H23. We expect weak to sideways movement for select consumer stocks in the near term,” it said in a report.