The edible oil shock following export ban by the world's top palm oil exporter Indonesia has pushed the international market into alarming territory.
The ban sent US futures tied to soybean oil – an alternative to palm – soaring to the highest price on record for a third straight day Saturday. In the UK, some supermarkets are limiting purchases of cooking oils so that everyone has an equal access to the cooking essential.
An India-based global trading firm states in its note of caution that sky would be the limit for edible oil prices now.
Following the Indonesia development, palm oil prices on Saturday surged by at least Tk300 per maund [equivalent to 40.90 litres] in Chattogram's Khatunganj – the largest essential commodity hub in Bangladesh.
The panicking palm oil export ban also heated up the already smoking soybean prices, as Khatunganj traders said palm and soybean oil prices have jumped Tk700-1,100 per maund in the last two weeks.
"We will not be able to produce or refine oil if we cannot manage the raw materials from the global market," Biswajit Saha, managing director of Bangladeshi conglomerate City Group, told The Business Standard.
He said sunflower oil could be an alternative to soybean and palm, but the Russia-Ukraine war has jeopardised the sunflower oil supply. "Bangladesh might bear the brunt of the ban ultimately since we do not have many alternatives available in the global market."
"If we cannot import even the raw materials, edible oil supply to the domestic market will collapse," Taslim Shahriar, senior assistant general manager of industrial conglomerate Meghna Group, told TBS.
He said the ban would mount pressure on another palm exporter Malaysia, as major edible oil buyers such as China and India would scramble to secure oil from the country.
Global supplies of vegetable oils had been in crisis since 2021 due to pandemic-induced freight disruptions and workers' shortage as well as climate issues. Amid the international tight supply, Beijing started ramping up its food and cooking oil stock to feed its 1.41 billion people.
"We last year witnessed how brutal the international cooking oil market could be with an aggressive buyer like China," Redwanur Rahman, general manager of Bashundhara Multi Food Products Limited, told TBS.
China's aggressive buying plus the Russia-Ukraine war worsened the situation in early-2022, making edible oils the latest source of further food inflation as they are used in thousands of food items processed at homes and industries.
Drought slashed the canola (rapeseed) crop in Canada last year, and reduced the soybean harvests in Brazil and Argentina.
Palm oil, the world's most consumed vegetable oil, was among the casualties of Covid-19 lockdown that shut doors for migrant workers much needed in Malaysian palm oil plantations. Yields sank to a 40-year low last year in the world's second largest producer of palm oil.
In the wake of domestic supply crunch and price hikes, oil producing countries such as Argentina and Indonesia came up with protectionist measures, halting or limiting exports.
In March, Argentina halted export registrations of soybean oil as drought affected the yield. The country supplied 48% of global soy oil supply last year. Indonesia too slapped an export restriction in March that was lifted recently.
Meantime, consuming countries have been struggling to reduce burden on people by lowering tax and increasing subsidised sales.
Bangladesh in March withdrew 15% value-added tax (VAT) on oil refining, 5% on retail and 15% on import. The government has also been offering the item to the low-income people in the Open Market Sales (OMS) at a subsidised rate.
Bangladeshis consume 20 lakh tonnes of edible oil a year, while the local production hovers around only around 2 lakh tonnes. The imported 18 lakh tonnes of edible oil incorporate 46% soybean and 53% palm oil.
Bangladesh's 80% palm import comes from Indonesia and 20% from Malaysia.
"Indonesia exports two-thirds of its palm harvest. In other words, it does not seem that the country will not prolong the export ban," Tariq Ahmed, senior director of edible oil producer and refiner TK Group, told TBS.
But a brief export ban even for 15 day to one months would leave a huge gap in the international market, which Tariq said would be difficult to tackle if there were no sourcing alternatives available.
Vanished bottles bespeaks domestic supply crunch
Non-branded loose soybean oil was found unavailable in Dhaka retail markets on Saturday. In many shops, there were no one litre bottles as the traders were offering two litre and five litre oil bottles.
Retailers said the companies have been cutting back on supplies for months – causing the supply crunch. However, most of the traders were found selling soybean at government fixed Tk160 per litre.
According to importers, palm was $1,700 and soybean at $1,990 per tonne in the international market.
The Trading Corporation of Bangladesh (TCB) in its market monitoring report says non-branded soybean is at Tk155-158, bottled soybean at Tk160-170 and palm oil at Tk145-150.
However, unpackaged palm oil was found at Tk170-190 per litre on Saturday.
"The companies are supplying at least 30% less than the demand. That is why there is an oil crisis," Ariful Islam, an edible oil dealer at Karwabazar, told TBS.
Another oil trader of the market Shafikul said they were not selling oil to anyone except their regular customers. He said the supply shortage forced them to adopt selective sales.
Declined LC opening rings alarm bells
Noor Mohammad Soadagar, a Khatunganj-based edible oil trader, said the rise in booking rates in the international market has sparked fears of further rise in edible oil prices in upcoming days.
According to Chattogram customs, around 5.36 lakh tonnes of crude soybean has been imported in the first nine months of the current fiscal year. Some 6.63 lakh tonnes of palm oil has been imported during the period.
Chattogram customs data show, oil import rose to around 10.22 lakh tonnes in the past three months ahead of Ramadan and Eid. Of this, soybean was imported around 3.63 lakh tonnes, while palm oil import stood at around 6.59 lakh tonnes.
According to government estimates, soybean oil demand in the country is one lakh tonnes per month. Some 65,000 tonnes of the monthly demand is met by importing crude soybean oil.
But last March, letters of credit (LCs) were opened for only 14,000 tonnes of soybean, which is drastically lower than usual.
Traders say the retail prices set by the government are lower than in the world market. Therefore, importers are shying away from the business causing further concern for upcoming days.
According to the traders, retail soybean rates as per the international market hover around Tk165-174 – which is lower than the government fixed prices.
On conditions of anonymity, several importers too said that they have reduced the LC opening fearing losses.