Palm oil is extracted from the mature fresh fruit bunches (FFBs) of oil palm plantations. One hectare of oil palm yields approximately 20 FFBs, which when crushed yields 6 tons of oil (including the kernel oil, which is used both for edible and industrial purposes). Crude Palm Oil (CPO), Crude Palmolein, RBD (refined, bleached, deodorized) Palm Oil, RBD Palmolein and Crude Plam Kernel Oil (CPKO) are the various edible forms of palm oil traded in the market. While Oil is the stable derivative (saturated fat, solid at room temperature) of fresh fruit crushed, Olein is relatively unstable (unsaturated fat, liquid at room temperature, but low cholesterol).
With a share of over 54% (18 million tons), palm oil dominates the global vegetable oil export trade. India, China, Pakistan, the Middle-East countries and the European Union are the major importers of the commodity.
Production of the commodity stands at 23-24 million tons (over 20% of the global vegetable oil), with Malaysia and Indonesia producing the lion's share- 11-12 and 8-9 million tons respectively. While the production has been growing at the rate of 7%, its consumption has been growing slightly faster at 7.15%. Acreage under the plantation has been growing at the fastest rate of 6.47%, substantially higher than its arch rival/competitor soybean (3.36%). Malaysian and Indonesian Government's have been working in the direction of increasing the yield levels of the plantations.
The Kuala Lumpur-based Malaysian Derivatives Exchange (MDEX) could be considered as the 'price maker' of oilseed and edible oils traded Worldover. This Futures Exchange trades only in CPO. It is one of the most vibrant futures Exchange, which factors in all the fundamental and technical factors influencing oilseed complex globally. The Chicago Board of Trade (CBOT where soy oil is traded) and the MDEX are closely interlinked in terms of price movement. It value of the unit of CPO traded at MDEX is expressed in terms of Malaysian Ringgit per ton. For instance, the futures price (September '03 contract) on 16th July 2003 was 1419 Ringgit/ton.
The Indian Scene
India, which is one of the largest importer and consumer of edible oils in the World, imports nearly 3 million tons of palm oil annually (mainly from Malaysia, followed by Indonesia). This implies that the country is dependent on palm oil imports for over 25% of its annual edible requirement. There has been a sharp rise in the imports of palm oil into the country during the post 1998 period.
|
RBD Palmolein |
CPO |
Crude Oil |
CPKO |
| 02-03 (Nov.- May) |
11,862 |
1,089,995 |
1,005,347 |
46,311 |
| 01-02 (Nov.-Oct.) |
118,895 |
1,891,538 |
920,015 |
|
| 00-01 (Nov.-Oct.) |
1,516,688 |
1,404,723 |
32,877 |
|
| 99-00 (Nov.-Oct.) |
2,213,777 |
828,359 |
|
|
| 98-99 (Nov.-Oct.) |
2,676,712 |
|
|
|
|
The composition of the Indian palm oil import basket has also undergone a observable change during the past 5 years. Crude oil has almost replaced refined oil imports owing to the differential duty between the two. The table below depicts the duty structure for various forms of palm oil imported into India.
| Description of goods |
Import Duty |
Tariff Value * (US$/ton) |
| Crude Palm Oil |
65.00% |
390 |
| RBD Palm Oil |
70.00% |
426 |
| RBD Palmolein |
70.00% |
434 |
| Crude Palmolein |
65.00% |
415 |
|
* Tariff Value/Base import price refers to the price on which the Government of India levies (calculates) the import duty payable by a palm oil importer at a given point of time. This was introduce by the Government last year with the objective of curtailing large-scale under invoicing that was being done by a few unscrupulous importers. The value keeps changing in line with the fluctuation in CPO prices in Malaysia.
Palm oil imported into India is used in various forms- consumed directly as 'palm oil' after refining, used in the manufacture of Vanaspati, for blending with other vegetable oil, crude oil and kernel oil for industrial purposes, etc. It is imported mainly through the ports of Kandla, Kolkata, Mangalore, Mundra, Mumbai and Chennai.
Imported crude oil/olein is traded at the cities of the importing ports in the form of RBD palmolein and RBD palm oil (60-70% of palm oil is imported by organised players in the industry i.e. By large refiners/corporates who own brands). Since 100% of the palm oil traded in the country is 'imported' from Malaysia and Indonesia, the prices in the main trading centres of Mumbai, Chennai, Kandla, Kakinada, etc. depend mainly on the futures prices of CPO at MDEX.
'Volatility' is at 'its highest' in case of palm oil. Being the sole oil dominating the international edible oil trade, it almost 'makes' the price of vegetable oils traded across the globe; more so for India owing to its high dependence. As mentioned earlier, palm oil factors in all the fundamental and technical factors influencing oilseed complex World over, making the prices highly volatile in line with the frequent fluctuation in the supply/demand complex. Hence, it becomes quintessential for any farmer or processor or trader dealing with oilseed/oil/oil meal, brokers, speculators and all others involved in the supply and value chain of oilseed complex to hedge against their price risk by participating in futures trading.
The Price Trend and Volatility of CPO and RBD Plamolein at the spot markets of Kandla at Kakinada enunciates the vitality of futures trading for hedging price risk in CPO and RBD Plamolein in specific, and other oils/oilseeds in general. The volatility also stands as a testimony to the 'trading opportunity' that the commodities (CPO and RBD palmolein) extend. |