Rising Palm Oil Prices Shake Up the Market

Palm oil, once considered an affordable cooking oil commonly distributed in ration shops, is now the most expensive edible oil on the market. Both refined and crude palm oil prices have soared past those of sunflower and soybean oils. The surge stems from supply concerns due to severe flooding in Malaysia and Indonesia’s push to increase export taxes while ramping up the biodiesel blend in fuels to 40 percent.

“Palm oil, which was once every household’s go-to oil, has now become the priciest option,” a trader remarked.

According to the U.S. Department of Agriculture (USDA), Indonesia and Malaysia, the top two palm oil producers, have seen prices rise steadily since mid-November. In contrast, soybean oil prices have dropped due to larger-than-expected soybean exports and crush operations in Argentina.

How Much More Expensive Is Palm Oil?

Recent data from the Solvent Extractors Association of India (SEA) highlights how much pricier palm oil has become. The landed price of refined palm oil (RBD) is now USD 0,74 per kg, making it USD 0,02 per kg higher than sunflower oil and USD 0,08 per kg more than soybean oil. Similarly, crude palm oil (CPO) costs USD 0,70 per kg, which is USD 0,05 per kg higher than sunflower oil and USD 0,12 per kg more than soybean oil.

The higher price is partly due to export duties imposed by Indonesia and Malaysia to encourage value-added refining. These taxes make crude palm oil costlier while reducing its availability for food use. SEA’s Executive Director, B.V. Mehta, said Indonesia’s growing reliance on palm oil for biodiesel production is further tightening supply. “Indonesia’s B40 biodiesel mandate will consume around 2 million tonnes of palm oil, reducing its availability for the food market,” he explained.

Lower Palm Oil Production Drives Up Prices

Indonesia’s decision to blend 40 percent palm oil into biodiesel from January 1, 2024, will further limit global food oil supply. “This move benefits palm oil growers by keeping prices elevated, but it reduces availability for food use,” said Mehta.

Adding to the tight supply is a drop in production. Malaysia’s palm oil output has been stagnant due to heavy rains, with plantations entering a low-production cycle. “We’re expecting lower production in the coming months, which will keep prices firm,” said Mehta.

The USDA’s December update noted that Indonesia’s reduced exportable supply, paired with insufficient stock in Malaysia, is contributing to the price rally. Palm oil prices in Malaysia have already risen 22,1 percent from MYR 3.995 per tonne on October 1 to MYR 4.050 per tonne by early November.

Impact on Indian Processors

The global price hike is affecting Indian refiners. “Indonesia’s organized and efficient refining capacity is thriving at the expense of Indian refiners,” said Sudhakar Rao Desai, President of the Indian Vegetable Oil Producers’ Association (IVPA).

Indonesia’s subsidies for refined palm oil exports have made importing refined oil cheaper for India. “If this trend persists, it could significantly hurt India’s refining industry,” Desai added.

Meanwhile, India’s soybean oil imports surged 172 percent in November, with sunflower oil imports rising 165 percent. However, RBD palmolein imports increased by just 66 percent, and crude palm oil imports dropped by 21 percent. As consumers and businesses shift to alternatives, this dynamic could further strain domestic oilseed producers.

Is a Consumer Shift Inevitable?

As palm oil becomes pricier, consumers in price-sensitive markets are turning to cheaper alternatives like soybean and sunflower oils. However, the substitution is limited by tight supplies of these soft oils globally. “We’re seeing a delicate balance in the vegetable oil market, as supplies of all major oils remain constrained,” said a Pakistan-based vegetable oil analyst.

SEA’s Mehta noted that while palm oil remains the preferred choice for many, lower-income groups are likely to switch to cheaper oils. Restaurants and catering businesses, too, are expected to adjust their purchases based on cost.

Pressure on Domestic Farmers

The rise in imports of cheaper soybean oil is driving down soybean prices in India. “Our domestic soybean prices are now ruling around USD 0,60 per kg, which is below the government’s minimum support price of USD 0,65 per kg,” said Mehta. Excessive soybean imports have also affected soybean meal prices, making Indian exports less competitive by USD 0,05-0,06 per kg compared to global competitors.

To support farmers, Mehta suggested that the government should offer export incentives for rapeseed and soybean meal. “Without support, our oilseed crushing industry faces significant challenges,” he warned.

Conclusion: What Should Buyers and Sellers Do?

Palm oil’s shift from a budget-friendly staple to a premium product has wide-reaching implications for consumers, processors, and farmers. Buyers in the HoReCa sector and price-sensitive households might consider switching to soybean or sunflower oils for now. However, with tight global supplies, expect limited relief across the vegetable oil market in the coming months. Sellers, meanwhile, should prepare for fluctuating demand and ensure they diversify their oil offerings to remain competitive.





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