Indian demonetization exercise affects crude palm oil imports, but likely to be temporary

24.11.2016


The effect of the recent demonetization of the Indian rupee on palm oil imports has been immediate, but should be quite short-lived, regional market sources said Thursday.

The government announced the demonetization of Rupee 500 and 1000 banknotes on November 8 in a move to address corruption and circulation of black money in the economy. The exercise has led to a cash crunch.

The effect on India's CPO imports has been immediate, a major market participant said, adding that imports have dropped by about 20%.

The demonetization of the rupee will be interesting because the smaller buyers who pay in cash may cancel orders, said Kelvin Chow, Food and Agribusiness analyst for Rabobank.

The cash crunch is causing downstream players such as small grocery stores to halt cash purchases, the major market participant said. But the cash situation was affecting everything, not only palm oil, he added.

When the smaller buyers do not purchase CPO, it has a knock-on effect on the refineries, the source said. It is a short-term inconvenience rather than a long-term phenomenon, he added.

The situation should resolve itself within two weeks, he said.

But independent analyst Budiman Suwardy said that it could take about 3-4 months for the cash crunch and its effect on imports to disappear.

Another CPO buyer said that there was uncertainty about cargoes already booked for export to India.

Meanwhile, the import outlook was looking bearish, said Rabobank's Chow, because India is expecting a large soybean crop, and buyers would like to reduce imports as their domestic crushing begins.

At current prices, even Chinese buyers are a bit wary of making purchase commitments, he pointed out.


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